What's going on?

Japan�s currency, the Yen, hit its highest level since October 2014 on Thursday. Yeah, we know what you�re thinking � why should I care about the Yen? Here�s why.

What does this mean?

For one thing, a rising Yen is usually a sign of trouble in the wider markets (it�s a �safe haven� that investors traditionally flock to in turbulent times). Since stock markets are fairly benign at the moment, some investors feel like there�s something lurking beneath the surface that they just can�t put their finger on (cue the Jaws theme song). In short, the rise of the Yen and other �safe-havens,� like gold, is making people nervous.

In addition, a rising Yen makes it more difficult for Japanese companies to sell goods abroad. This is particularly true for auto companies, electronics manufacturers and makers of industrial goods, i.e. things that Japan exports a lot of. The flip side of that is it becomes easier for companies based elsewhere, like Europe and the US, to compete with the Japanese on the global stage.

Why should I care?

The bigger picture: Negative interest rates aren�t working. In theory, they are supposed to decrease the value of a currency as investors flock to buy other currencies that will actually pay them a positive rate of interest (like the US dollar). But the Yen is up more than 8% since the Bank of Japan instituted negative interest rates back in February. Not good (for Japan). Europe, which has instituted its own version, has seen its currency go up 5% versus the US dollar this year. Basically, if the goal is to devalue one�s currency, then central banks are failing.

For you personally: When investing in international stocks, foreign exchange movements matter a lot! Since January 1st, Japanese stocks are down about 20% but the Yen has strengthened about 10% versus the US dollar. That means that a US-based investor would have �only� lost 10% (while a European would have lost 15% due to the Euro only weakening 5% versus the Yen).