Historical movement during 1992-2003
In 1995, the value of Yen excessively rose and the forex rate of USD-JPY dropped below 80-ish in April. Three years have passed, and the forex rate recovered to 147-ish in August, 1998. Some one would take this matter as great Yen's appreciation because the figure grows up from 80 to 147. The fact is, however, completely adverse that the value of Yen is drastically going down. For example, you can buy a one dollar candy only at 80 Yen in 1995, but it would cost 147 Yen in 1998. In this way, you will find that the shift of forex rate from 80 to 147 stands for decreasing the relative value of Japanese Yen. The Yen depreciation for a dollar makes Americans to buy Japanese products at lower price and Japanese's to buy US products at higher price. As a result, it strengthens Japan's export competitiveness and weakens US' competitiveness.
The forex rate of USD-JPY suddenly drops from 135 to 111 for a few days in October , 1998. In this year, some big troubles hit the financial markets. The Russian Ruble dropped rapidly and it led Russian economy to currency crisis, and it results in the default against foreign debts. In addition, the biggest US hedge fund, Long Term Capital Management, falls bankruptcy as you all remember.
In those days, US administration executed the stronger dollar policy called by Mr. Robert Rubin, the Secretary of US Treasury. It brought about excessive demand like a bubble in the stock market despite a dark outlook of declining US economy. The currency unease in Latin America took a trigger to change the trend of dollar appreciation like 147-ish and the forex market was forced to adjust dynamically.
LTCM bankruptcy tightened US financial credibility and it enforced other hedge fund functions to unwind their positions based on the global carry trade. It needed to buy back Japanese Yen and to sell US dollar. This brought about great fall by 14 big figures in the forex rate, especially, USD-JPY only in two days.
The stronger dollar policy centralized money from all over the world into the US stock market or bond market. On the contrary, rising Yen follows to collect such money to Japan, and the Japanese capital markets would become a hot issue. It is easily assumed that the profit arising from Japanese asset purchase would be made bigger if the forex rate is moving from120 to 100, and would be more if the value of asset is growing upper. Consequently, the forex rate is most significant point for foreign investors to judge.