Japanese yen at 40-year low while US rates stay high — ride the Japanese stock rally
The Japanese yen has crashed to its weakest level in 40 years, making Japanese exports incredibly cheap and boosting profits for Japanese companies. At the same time, the US Federal Reserve is signaling it will keep interest rates high to fight inflation, which is part of why the dollar is so strong and the yen is so weak.
Idea
The yen hitting a 40-year low is a massive tailwind for Japanese exporters — their products become dramatically cheaper for the rest of the world to buy, and their overseas profits are worth far more when converted back into yen. Bloomberg notes that Japanese stocks are already set to climb on this dynamic. The driver is the contrast between a Fed under Chairman Warsh that investors are underestimating in its determination to fight inflation, and a Bank of Japan that is letting its currency slide. As long as US rates stay high and Japan stays dovish, the weak yen supercharges Japanese corporate earnings.