When Yen Parity?

The Yen is rising in value vs. the U.S. Dollar, could we make a guess when 1 dollar is the same worth as 1 yen?  Such a guess would be purely speculative and work only if “past history is the best forecaster of future behavior.”  Which is certainly untrue.  All that not withstanding, we will have a try at it based on an interesting observation.

The Japanese Yen has been strengthening against the U.S. dollar in bursts, pauses, and  jiggles of various sorts.  Recently, it appears to have been relatively constant with a bit of a drop on Friday, 2011 Oct 28  (look at the published daily charts in the New York Times newspaper) .


Yen/Dollar 5 year history

Since extrapolations of yen valuation could only be done if we could see visible trending, here is an interesting graph.  I will post this twice, one of the raw data and one with a trendline drawn in.  The graph here is from the Yahoo! Finance section and shows the cost of 1 U.S. dollar in yen from the start of 2007 through Oct 28, this year.  Click the graph for an larger version.


Straight line approximation to the same data.

The data graph shows such a relentless rise in the value of the yen that we are tempted to draw in a trendline.  The line is hand-drawn, to guide the eye.  I did not do computations to get it, and would guess it is within 20% of a least squares calculation.   Any conclusions we might draw would have larger uncertainties than that!

But the data do show that yen values have been rising rather dramatically during the global recession.  The rate of decrease in yen/dollar (ypd) is  about 0.9 ypd per month [ = (118ypd – 76 ypd)/(47 months) ].  The yen exceeded the US penny sometime in 2008 and has kept on going.

Suppose the yen continues this appreciation.   This may not be a horrible assumption; it did continue its growth throughout the recession and even after the Fukushima disaster.  To reach parity, it must appreciate through 75 ypd to reach 1 yen per dollar.  Use straight line projection: Δypd = rate * Δmonths, the time needed is M= 75/.9 = 83 months.

So if the Japanese keep as the economic powerhouse that they are, one yen will be worth 1 US dollar in 7 years (=83/12).   This means we should hold the parity party sometime about 2018 or 2019.

What if our estimate of this is 30% too fast so that our 7 year result should be 9 years.   This would mean our party would be held in 2020.

click for a list of LastTechAge posts on monitary policy

Now let’s get real.    In my classes, I teach that no data set can be reliably be extrapolated beyond  maybe 10% of its data window (1/2 yr for our 5 yr window).  This does put a bit of damper on our enthusiasm for expecting the dollar-yen parity party by 2020.   So do not hurry out to get rising sun bunting, whistles or party hats any time soon.  Does this have anything to do with technology?  Ha!  I am not even sure it has much to do with economics, either!   But it is an interesting bit of fun.


Charles J. Armentrout, Ann Arbor
2011 Oct 29
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About LastTechAge

I am a physicist with years of work in fusion labs, industry labs, and teaching (physics and math). I have watched the tech scene, watched societal trends and am alarmed. My interest is to help us all improve or maintain that which we worked so hard to achieve.
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