While currency traders often discuss interest rate differentials in the context of the USD and Euro, the concept is more closely tied to movements of the Yen. Japanese interest rates remain at depressed levels; the annual yield on Japan’s 10 Year note is currently 1.3%, a full 3 percentage points below the US equivalent. Accordingly, Japanese investors continue to pour money into foreign assets, where yields are significantly higher. This may prove increasingly problematic for the Yen, as Japanese corporations and individuals have suddenly found themselves with more cash to invest, due to the recovery of Japan’s economy. That they are investing profits and savings, respectively, into foreign securities rather than into their home economy, is not a good sign for the Yen. Bloomberg News reports:

Japanese investors bought 16.6 trillion yen ($145 billion overseas assets last year, according to figures based on reports released by the Ministry of Finance.

Read More: Yen Drops on Speculation Japanese Investors Seeking Higher Returns Abroad