Yen Finds Its Sweet Spot After 50 Years of Trying

For most of the past half century, the yen has either been severely undervalued or severely overvalued against the dollar, resulting in a highly destructive boom-bust supercycle in Japan’s economy. But now, the currency is finally showing signs of stabilizing at somewhere close to fair value as defined by the Organization for Economic Cooperation and Development’s measure of purchasing power parity, offering perhaps the healthiest configuration for businesses and investors in decades.

The thing about the foreign-exchange market is that currencies move around much more than they should. Country fundamentals -- meaning purchasing power parities, or PPPs -- change slowly over time, but financial markets respond to a variety of transient factors. Also, currencies are inherently political. The yen-dollar rate influences and is influenced by the twists and turns of the U.S.-Japan relationship. That is why Japanese ministers of finance and other high officials feel obliged to make public comments on the market’s gyrations.