STEM major here. I saw this recently about how Japan raised its interest rates to .25%. Can someone please explain to me how this strengthens the yen? In addition to this why would the US increasing interest rates at this time decrease the value of the dollar? Please help me I’m lost here 😅 have a great day everyone!
In: Economics
Currencies are all about supply and demands. If people desire to possess a currency for whatever reason, it will appreciate and if everyone dumps it, it will depreciate.
A country typically issues bonds in their own denomination (e.g. you need to have yen to purchase Japan bonds, and USD to purchase US bonds). When Japan increased their interest rate, people purchased yen (to buy Japan bonds) and make it appreciate.
0.25% doesn’t seem much but historically, everyone has been dumping the yen the moment they got it (because Japan bond paid 0% interest) and people even borrow in Japan to invest somewhere else (because again, interest in Japan was low) so when it suddenly started paying interest, these people now has borrowing cost and needs to massively downsize their operation.
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