currency

Yen tumbles, as the Bank of Japan announces the purchase of 10-year bonds

Business

Ian Krysztofiak, Staff

The Yen has hit a seven-year record low of ¥124 when compared to the dollar on foreign exchange markets. Just 10 months ago, it was valued at ¥109. The Euro gained 1.17 percent to €135.79, a four-year high. The Yen is on track to be the worst performer in 2022 in the foreign exchange markets, next to the Swedish krona — while the U.S. dollar and the Australian dollar are currently the best performers of this year. The Yen has been commonly viewed as a “safe haven” currency when things are going wrong in markets.

On March 28, the dollar hit USD $125.09 against the Yen; it has since dropped two percent to around $122 on April 1. A weak Yen caused by low rates can make cost increases even worse for imports, but it should help Japan’s exporters. 

As the Bank of Japan (BOJ) moves to contain rising bond yields, they have announced the purchase of unlimited 10-year Japanese bonds for four straight days to curve bond yields. Inflation remains relatively quiet in Japan, as their estimate for 2022 is two percent, while they are currently at 0.9 percent. 

While Japan’s economy is already facing economic problems from surging energy costs and raw materials imports, confidence among Japan’s largest manufacturers declines as the Yen weakens. Japan has been primarily an export-driven economy, but in recent years production has been shifting overseas. Wage growth also remains relatively low and might not be able to keep up with overall inflation if the weak Yen pushes Yen-denominated energy prices up even higher.

Currently, the Yen is the third most heavily-traded currency, being used in trillions of dollars of highly leveraged trades. Hedge funds are fans of the Yen because they use it to invest in high yield bonds, and they use it to arbitrage differences in interest rates. These highly leveraged trades have the potential to fall apart quickly when the Yen makes upward or downward moves, forcing hedge funds to make margin calls and liquidate their safe bets.

While most central banks have been hiking interest rates to fight inflation, or at least discussing it, the BOJ has no plans to do either. Given Japan’s low inflation rates relative to the rest of the world, especially the United States, it makes sense that they wouldn’t need to hike interest rates to compensate. However, due to surging energy costs and raw materials imports, the Bank of Japan will likely have to exercise some type of monetary policy to strengthen the Yen back to its previous state.

Currency of the future or tulip bulb of the past: will crypto continue to boom or will it bust?

Business

Michael D’Angelo, Staff

Gadgets 360

Pictured above is Tesla CEO, Elon Musk. In late March, Musk announced via Twitter that Tesla cars may be bought with bitcoin and any bitcoin Tesla receives as revenue will not be converted to fiat currency.

All the recent rage in the financial markets is related to cryptocurrency. It appears almost daily one can see a crypto-related news headline. Just two weeks ago a “meme” cryptocurrency known as dogecoin reached an all-time high, netting some traders thousands of dollars. In addition, just yesterday, Tesla announced they sold $272 million worth of bitcoin (BTC) during the first quarter. 

Cryptocurrency is defined as an unregulated digital currency that uses an online ledger to track ownership to buy and sell goods. An idea of unregulated digital currency drives the enthusiasm behind crypto and many investors view the currency as digital cash that cannot be traced. The most popular cryptocurrency is Bitcoin. Bitcoin utilizes complex blockchain technology to track ownership and manage trading. Some investors see Bitcoin as a store of value and an alternative to physical gold while others view it solely as currency to buy and sell goods. 

Bitcoin has grown tremendously since its inception in 2009 and has experienced widespread interest since last March when the pandemic and stay-at-home orders forced millions into lockdown. Much of Bitcoin’s rise is attributed to retail investors, but institutional investors are involved with the commodity. Big-name financial companies and fintech players like Square and MicroStrategy have used cash to purchase bitcoin. Even asset management fund Fidelity has jumped in and intends to release an ETF to track BTC benchmarks. Bitcoin’s market cap is currently valued at over $1 trillion. 

Tesla’s CEO, Elon Musk, has spoken countless times about cryptocurrency and his company’s offer to accept Bitcoin as payment for their cars. In February of 2021, Tesla bought $1.5 billion of Bitcoin. They stated in SEC filings that the purpose of the purchase was to gain a better return on their cash, but they did warn investors of the price volatility involved with the purchase. According to Tesla’s Q1 earnings report, total revenue grew year-over-year by 74 percent. Tesla’s GAAP net income reached $438 million while non-GAAP net income was over $1 billion. Also, Tesla reported more deliveries of their car products. Musk made the Bitcoin purchase to emphasize the liquidity involved with the coin. 

As cryptocurrency becomes more widespread, regulators and government officials are left scratching their heads. They must decide how to regulate the crypto market. India had a ban on cryptocurrency which has been reversed in March of this year. Turkey has banned cryptocurrency. Back home in the United States, Bitcoin faces some regulation by organizations like the SEC, the Fed and the CFTC. The IRS taxes Bitcoin and other cryptocurrencies as property. Janet Yellen, the current Treasury Secretary, believes Bitcoin is an “extremely inefficient” way to conduct monetary transactions. Overall, many regulators are going to have to find an agreement and decide how to regulate the coin. 

As Bitcoin grows in popularity and many people look to the future, we must be cautious of the recent rapid rise in its price and remember the history of financial booms and busts. Bitcoin and the cryptocurrency market have the potential to fully take over our lives. Bitcoin can be as useful as the American dollar in the next few decades or can be remembered like the tulip bulb of 1637.