The Japanese yen’s collapse was feared on Friday as the currency dropped to a 4 1/2 year low against the US dollar. The collapse was felt throughout the market as Japanese investors moved toward buying more foreign assets.
The yen’s value slipped to 101.98 per dollar, the lowest for the Japanese currency since October 2008. The currency’s technical collapse helped Japanese stocks outperform all others by a wide margin.
Markets elsewhere stayed solid at the end of the week, which saw several indexes around the world into all-time highs. The Dow Jones industrial average closed over 15,000 for the first time this week.
The yen’s collapse on Friday comes after the currency was put under intense pressure by the new government of Prime Minister Shinzo Abe. Abe is attempting to get the world’s number 3 economy out of a two-decade stagnation. Japan has seen about 15 years of deflation where the nation’s economy grew minimally.
However, Abe announced a “three-arrow” plan, which includes printing more yen by the Bank of Japan. His hope is to hit an inflation target of two percent per year. Some financial experts say the dollar will rise to be worth 105 yen or more by summer and at least 110 by the end of the year.
The yen’s collapse should also help Japanese exports, at least in the short term. The export help is part of Prime Minister Abe’s plan for the Japanese market. However, some US automakers have accused the Japanese prime minister of manipulating the country’s currency to give the country’s competition an unfair advantage.
Morgan Stanley announced that Toyota, the world’s largest automaker, will end up getting about $1,500 per car in benefits. The yen’s collapse will also likely encourage Japanese automakers to spend more money on better components or accessories rather than cutting prices to beat out their competitors.
It is unclear what the yen’s future will be after its technical collapse on Friday.
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