The Death and Resurrection of JPY against USD in 2022

The Japanese Yen and the US Dollar have had a volatile relationship in 2022. The Yen, which had been steadily gaining strength against the USD in previous years, suddenly found itself in a weaker position during the first half of the year. This was due to a series of events that shook the global economy and caused investors to flock to the perceived safety of the USD.

Q1

In the first quarter of 2022, the Japanese Yen weakened against the US Dollar. This was down to a combination of factors including the emergence of a more virulent strain of the coronavirus in China, known as the Delta variant, and a series of natural disasters in Japan including earthquakes and typhoons.

The emergence of the Delta variant of the coronavirus in China caused widespread economic panic and disruption as businesses were forced to close, which resulted in millions of people losing their jobs. Japan saw the number of people diagnosed with COVID-19 sky-rocket from 1.7 million in January, to 5.8 million in March. Because of this widespread panic and disruption to businesses, investors became concerned about the stability of the global economy and sought out safer assets, which in turn led to a sell-off of riskier assets and an increase in demand for the Dollar. This caused the Dollar to strengthen against the Yen and other currencies. We can see in the early months of 2022 where the Yen tries to stay strong, but March of 2022 is where the real sell-off occurs and things just go from bad to worse.

As well as the rise of the Delta variant of COVID-19, natural disasters in Japan, including earthquakes and typhoons, wreaked havoc on local economies, not to mention the Japanese economy as a whole. Widespread destruction resulted in problems trying to keep up with their exports. Japan’s main exports include cars, integrated circuits, motor vehicle parts etc. Due to the fact that Japan was unable to meet the demands of their export agreements and resulted in negative GDP growth of -0.2% for Q1, this resulted in the decline of the value of the Yen since there was no need for countries to purchase the Yen to pay for their exports. The Bank of Japan attempted to intervene by stabilising the currency by adopting certain monetary practices such as keeping interest rates low at -0.10% and increasing the amount of currency in circulation, but these measures had limited success in boosting the value of the Yen against the Dollar.

Q2

In the second quarter of 2022, the Yen experienced a turnaround against the Dollar. This was due to a combination of factors that helped to boost the value of the Yen. One of the major factors was the fact that the pandemic appeared to slow down as more and more vaccines were developed. This  improved the global economic outlook as things began to recover. Confidence in the Yen also started to return and the demand for the Dollar as a safe haven weakened thus making the Yen and other currencies more attractive. 

The Bank of Japan (BoJ) also played a role in the Yen’s recovery through its efforts to stabilise the currency. In an attempt to boost the value of the Yen, the BoJ implemented monetary measures to make the Yen look more attractive to foreign investors, as well as their GDP growth which expanded by 0.9%. In addition to the improving global economic outlook and the BoJ's efforts to stabilise its currency, the Yen was also supported by the country's relatively strong economic performance compared to other countries. 

Q3

In the third quarter of 2022, the Yen continued to strengthen against the Dollar This was due to a combination of factors including the improving global economic outlook, the Bank of Japan's monetary policy efforts to stabilise the currency, and Japan's relatively strong economic performance compared to other countries especially during the COVID-19 pandemic.

The global economy continued to recover in the third quarter of 2022 as the pandemic came under control as more and more people started to get vaccinated. This led to an increase in investor confidence in the Yen as they started to see it as a more attractive currency compared to others. The BoJ's efforts to stabilise the Yen also played a role in the currency's ongoing recovery. By keeping interest rates low and increasing the amount of Yen in circulation, the BoJ made the Yen more attractive to foreign investors, helping to boost the value of the currency against the Dollar.

Q4

In the fourth quarter of 2022, the Japanese Yen continued to show strength when compared to the Dollar, which was due to a combination of factors including improved overall global economic outlook, the Bank of Japan's monetary efforts to stabilise the currency, and Japan's relatively strong economic performance compared to other countries.

The global economy continued to recover in the fourth quarter of 2022 with a global GDP result of 3.2%, and the pandemic started to slow down and become less severe. Exports have also started to pick up after experiencing a 20% growth rate despite feeling the effects of the Fukushima earthquake that happened towards the beginning of the year. The BoJ also agreed that it was in their best interests to keep with their monetary policies by keeping interest rates low, the BoJ made the Yen more attractive to investors, helping to boost the value of the currency against the USD.

Japan's strong economic performance also supported the value of the Yen in the fourth quarter of 2022. While the country was hit hard by the pandemic and natural disasters earlier in the year, its economy was able to bounce back more quickly than some other countries. This helped to increase investor confidence in the Yen and contributed to the currency's ongoing strength against the Dollar.