This is a corner where all about experts can answer small money questions from everyone. This time, I would like to talk about trends and precautions in the US economy that are of concern when depositing in foreign currencies in US dollars. If you would like to ask an expert, please write in the comments.
Money is difficult, isn’t it? All About experts will answer your questions and concerns about money. This time, I would like to talk about trends and precautions in the US economy that are of concern when depositing in foreign currencies in US dollars. If you would like to ask an expert, please write in the comments.
Read also: How to maximize your tax refund in 2022
Q: Is it okay to increase my US dollar deposit? Is there anything I should be careful about?
“We have been depositing foreign currency in US dollars for several years. We are in a situation where we cannot see the future due to unstable world conditions, but we are wondering whether to increase the amount of deposits. Please let me know if you have anything to be careful about. “(30s / male)
A: The dollar is expected to rise and the yen is expected to weaken in the future. Keep an eye on interest rate and currency trends
There are two aspects to foreign currency deposits, one is literally a “deposit” product. Deposit interest rates fluctuate depending on trends in demand for funds.
The other aspect is that it is a “fluctuating” product due to exchange price movements. It is often difficult to give a clear reason for exchange price movements. However, it basically fluctuates depending on the economic conditions between the two countries and the price situation.
Since you have a foreign currency deposit in US dollars this time, I would like to compare the economic conditions of Japan and the United States. The US economy has gradually resumed its economy, which had stopped due to the effects of the new coronavirus infection, from around 2021. In March, some states also removed the obligation to wear masks.
As a result, consumption has become more active, and the consumer price index (CPI) in January 2022 increased by 7.5% from the same month of the previous year, the highest growth rate in about 40 years. Wages are also rising steadily.
In response to this economic situation, interest rates are being raised in the United States. The FOMC (Federal Open Market Committee) on March 16, 2022 decided to raise interest rates by 0.25%, and plans to continue raising them in the future.
On the other hand, Japan is still delayed in resuming its economy due to the effects of the new coronavirus infection. GDP (Gross Domestic Product) from July to September 2021 grew negatively to minus 3.6% (second breaking news) on an annualized basis. Although it picked up in the October-December period, there is a view that it will be negative again in the January-March period of 2022 due to the influence of measures to prevent spread.
In the first place, Japan’s GDP has hardly grown in the last 30 years due to the effects of deflation and tax increases. Interest rates are almost zero.
From the above factors, it can be said that the flow of money tends toward the dollar, which has a high interest rate. This will cause the dollar to strengthen and the yen to depreciate. Dollar deposits may have two potential benefits: rising interest rates and improved valuation on a yen basis.
However, it seems necessary to pay attention to the fact that foreign exchange does not always work according to the textbook due to fluctuation factors such as geopolitical risk and foreign exchange intervention.
* If you have any questions to the experts, please write in the comment section.
