I have always wonder why its so much stronger ? when you go to Japan, everything is cheaper in a sense and the U.S dollar means more in Japan. Why is that ?
In: Economics
The strength of a currency is a slightly different concept than what you are getting at. You are talking about purchasing power parity. PPP a consequence of many factors – tariffs, cost of living, trade, GDP and much much more.
A currency’s strength is measured as relative change in conversion rates over time. Today, 1 dollar is 157 Japanese Yen. If that ratio trends down over a long period of time you would say that the Yen is stronger than the dollar even though one dollar would still buy many more Yen. The only thing that matters here is the direction.
While there is a relationship between PPP and currency strength, it’s not fixed. It’s theoretically possible that in the future that the next time you visit Japan, one dollar will buy more yen while at the same time the trip can feel much more expensive in dollars. In that case the Yen will have weakened against the dollar while PPP increases.
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