The yen has dipped nearly 25% against the US dollar since November, after Japan unveiled a series of aggressive moves to spur growth in its economy.
The Japanese currency has come close to the 100 yen to a US dollar mark in recent days, but has been unable to breach that level.
Analysts said that on Thursday, strong data out of the US, which showed that first-time applications for unemployment insurance had fallen to the lowest level in more than five years, had helped the yen pass the mark.
They said the data triggered hopes of a sustained recovery in the US economy, resulting in investors ditching safe-haven assets such as the yen in favor of the US dollar.
A weakening Japanese currency opens a window for international investors to profit on two fronts. With the central bank’s main interest rate target near zero, they can borrow the yen cheaply, and then lend it abroad. Some of these Japanese companies were profitable at 78 yen to the dollar, so the dollar at 100 yen would be a boon for the corporate sector.
However, some analysts have warned of the risks associated with these aggressive measures and the yen’s continued weakness.
They say that if Japan’s economy does not start showing signs of a recovery, and with interest rates in the country close to near zero, it may see a rise in “carry-trades”.
This happens when traders around the world borrow yen at very low interest rates and use it to buy currencies to invest in countries where interest rates are higher.
Such trades have no impact on the real Japanese economy, but they result in the yen weakening further.
It will take time for competitors to Japanese companies to feel the effects but there were larger concerns to consider: By injecting such a large amount of money into the global financial system, you may end up distorting prices in such a way that it causes distortions in the real economy.
The lesson after the Japanese investment bubble collapsed in 1990 was “never own equities again.” But today’s Japanese investors are more cautious than those of a generation ago.