How the Japanese Yen will fare in the coming months is currently a popular topic of discussion. The Japanese Yen has appreciated for several consecutive years, and many investors are bullish on its future. They point to an improving economy, made possible by low interest rates. The Japanese government seems to agree, having recently upgraded its assessment of the Japanese economy for the first time in almost a year. Many analysts agree, citing technical indicators as evidence that now may be an especially good time to buy the Yen. 

But, for every bull, there’s a bear, and this situation is no exception. Japan is almost completely dependent on other nations for raw materials, notably oil and natural gas. As the prices of these commodities rise, Japanese businesses and consumers must spend more of their free cash and disposable income, respectively, on purchasing these commodities. In most countries, the profits earned by domestic producers of raw materials offsets the higher costs born by other businesses that use these raw materials as inputs in production. This trade-off does not exist in Japan, and each additional Yen spent on gas causes a proportionate decline in Japanese GDP, which could weaken the Yen. Furthermore, this increase in the cost of raw materials has left Japanese companies with less profit. Many foreign investors are selling Japanese equities, which has caused a significant outflow in foreign capital. Only time will tell who is more prescient- the bulls or the bears.

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