This is a linkpost for https://www.bhauth.com/blog/economics/yen.html

Recently, the yen-dollar exchange rate hit a 34-year low. Why is that?

6-month US Treasuries are paying around 5.3% interest. Japanese government bonds are paying about 0%. That being the case, you can borrow yen, trade it for dollars, buy US bonds, and get more interest. That's called a "yen carry trade". The risk you take in exchange for that money is that the exchange rate will shift so that a dollar is worth less yen.

But of course, it's also possible that the exchange rate will shift in the other direction, and that's what's happened recently. From 2020 to now, $1 went from 105 to 150 yen.

That being the case, I'd normally expect inflation to be higher in Japan than the US - their currency became less valuable, which makes imports more expensive. Yet, that's not what happened; inflation [...]

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Outline:

(01:58) Question 1: Why would an hour of labor from an American be worth 2x as much as an hour from a Japanese employee?

(02:37) Question 2: Why do Japanese automakers operate some factories in America instead of importing everything from Japan?

(03:25) Question 3: Why can the Japanese government keep borrowing money with no interest?

(03:59) Question 4: If dollars are overvalued, why does America have any exports?

(05:31) Question 5: If American labor is expensive, whats it doing?

(06:50) Question 6: Why do people want dollars if theyre overpriced?

(08:16) Question 7: Is that actually a problem?

(09:54) Question 8: Why dont Japanese invest domestically?

(14:24) Question 9: Why dont foreign companies outcompete in Japan?

(15:03) Question 10: What could be done about these issues?

(16:15) Question 11: What if youre an American who wants to make stuff?

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First published:
April 7th, 2024

Source:
https://www.lesswrong.com/posts/yF3nnfYdAoHPAzNkH/on-the-dollar-yen-exchange-rate

Linkpost URL:
https://www.bhauth.com/blog/economics/yen.html

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[Linkpost] “on the dollar-yen exchange rate” by bhauth

LessWrong (30+ Karma)

[Linkpost] “on the dollar-yen exchange rate” by bhauth