While the dollar-euro futures have been trading sideways for the past few weeks, a sea change is occurring in the dollar-yen trade. As of yesterday, one dollar was worth just 83.77 ¥, its lowest point in over a year.
If the general downtrend was not troubling enough, the Japanese government intervened yesterday for the first time in six years to depress the yen and encourage exports from the country.
This may be good news for Japan’s exports, but it is bad news for everyone else.
Fundamentally, it makes the cost of raw materials higher for the American manufacturing industry which, as demonstrated by the latest nonfarm payrolls data, is helping keep the recovery afloat.
One may assume that crude oil is now cheaper for Japan, thus boosting demand. This works in theory, but not in practice.