The Yen: How low can it go?

**Samantha Fenwick** (0:00)
A 40-year low for the Yen, and it's a one-way bet.

**Jesper Kohl** (0:03)
You can borrow in Japan for 1%. You can invest in America for about 4%, pocket the 3 percentage points different, and play golf all afternoon.

**Samantha Fenwick** (0:17)
Nice work, if you can get it. It's World Business Report from the BBC World Service.
I'm Sam Fenwick. The Japanese Yen has synced to its lowest since 1986 What can stop the decline? Gold's meant to shine when the world's nervous, so why is it heading for its worst quarter on record? Nike bets a fortune on football. We'll ask if the gamble's paid off.
So the Japanese yen is at its weakest since 1986 On Tuesday, it slipped past 162 to the dollar, a level it hasn't touched in nearly 40 years. And here's the puzzle. Japan's central bank has been rising interest rates. The government spent a record $72 billion in the spring, trying to prop up the currency, yet it still falls. If you're in Japan, that means a more expensive shop than the grocery store or a pricier tank of fuel. And for businesses like the one Robert Applin runs Benchmark, a small construction company in Tokyo, then life is really tough.

**Robert Applin** (1:29)
When our materials are imported, that really affects the price of materials. It's really difficult. But I'm locked in on a lot of contracts in the moment that I set prices like six months ago. I can't change that at the moment. We're stuck between a rock and a hard place, I'd say.

**Samantha Fenwick** (1:43)
How much are you losing then?

**Robert Applin** (1:45)
I'd say 10, 15% is very, very difficult.

**Samantha Fenwick** (1:49)
And how long can you go on like that for?

**Robert Applin** (1:52)
Not for much longer. Some jobs I'm going to make a loss on at the moment. The economy here is so stagnant. I mean, another problem we've got at the moment is because of the Iran War, there's lots of issues with materials that we can't get at the moment. Like certain type of foam insulation for flooring, anything that's oil-based paint-wise is the real issue. And how long can we go on for? If things get really bad, 18 months or so, we can carry on like this, maybe.

**Samantha Fenwick** (2:16)
Rob, Apple in there was talking to my colleague Sarah Rogers. But if you're in Tokyo selling cars abroad, it's quite good news for you. So why won't the yen stop falling? And is anyone going to step in to catch it? Jesper Coll has watched Japan's economy up close since the 1980s. He's the expert director at Monex Group in Tokyo.

**Jesper Kohl** (2:38)
Yes, interest rates in Japan here are going up, but they're going up at a very slow and very measured pace. And meanwhile, particularly in the United States of America, there is now growing confidence that the Federal Reserve, that American interest rates are actually going to go up again rather than down. So, you know, what does it actually mean? If you're a Japanese financial firm, you can borrow in Japan for 1 percent. You can invest in America for about 4 percent, pocket the 3 percentage points different, and play golf all afternoon.

**Samantha Fenwick** (3:21)
And when you put it like that.

**Jesper Kohl** (3:24)
And it's very interesting. I mean, look, currencies are always, you can make them as complicated as you want. But at the end of the day, the difference between your rate of return in one country versus what you can make in the other country gives rise to what is called a carry trade. You know, so you borrow in yen for 1%.
You invest in America for 4%. And you know, you live happily ever after. And that fundamental is not going to be changing.

**Samantha Fenwick** (3:55)
When you talk about that carry trade, is that how we understand it as people selling their yen?

**Jesper Kohl** (4:01)
That's exactly what it is. Whether it is Mrs. Watanabe, you know, the Japanese saver, and basically saying, well, what's my choice? I can get 1% in Japan, or I can get 4.5% in the United States of America. Well, I take my chances and I go with America. And by the way, for the last 2.5 years, the yen has been weakening. There have been very short periods of government intervention, but basically that's just a drop in the bucket. The fundamental trend is one of yen weakness because money is being pulled out of Japan as the rates of return are higher elsewhere.

**Samantha Fenwick** (4:42)
But does that not then contribute to the decline of the value of a currency if everyone's selling it off?