Despite efforts made by Japanese authorities to support the yen, the currency hit a 32-year low when compared to the U.S. dollar. Indeed, the yen weakened to as much as 150.08 per dollar today. This equates to more than a 23% decline year-to-date.
After decades of fighting deflation, it appears that inflation has entered the Japanese economy as the Bank of Japan has continued to stimulate its economy while other central banks have been tightening. In fact, the Bank of Japan has been keeping the 10-Year yield below 0.25%. As a result, the higher spread between U.S. Treasury yields and Japanese yields makes investors less attracted to the yen.
It is appearing more likely that further interventions will be required to prevent the yen from weakening further.
A stock that is being impacted by this weakness is Sony Group (NYSE: SONY). Based in Tokyo, Japan, Sony reports its financial results in yen. A weaker yen will translate into higher earnings in its native currency, which could boost its value on the Japanese stock exchange. However, it would likely continue to pressure the stock price on the U.S. stock exchange.
Is Sony Stock a Buy Right Now?
Turning to Wall Street, Sony has a Moderate Buy consensus rating based on 2 Buys assigned in the past three months. The average Sony stock price target of $125 implies 92.4% upside potential.
Takeaway: Bank of Japan Must Decide between Currency or Stimulus
The Bank of Japan seems no longer able to support its currency while simultaneously stimulating the economy. Therefore, it must decide which of the two is more important. If the yen can’t find a floor, it might ultimately choose to cut back on stimulus.
