Rachel Z. from Fairfield, CA asks: Hello Mitch, I just returned from a trip to Japan where some friends were talking about how strong the dollar was. That got me thinking of what a strong dollar might mean for markets and the economy overall. I’ve never quite understood whether a strong or weak dollar is better. Any insights are appreciated! Thank you.
Mitch’s Response:
Thanks for writing, Rachel. Hope you had a great trip overseas! Your friends were correct in citing dollar strength against the yen. In 2024 alone, the dollar has gained just under 10% against the yen, with one dollar buying over 150 yen. That’s the strongest the dollar has been in Japan since 1990.1
To be fair, the U.S. dollar has been strong this year-to-date—up about 5% against a basket of major currencies—but Japan has been something of an outlier. The Federal Reserve and Bank of Japan help explain why.
As many readers know, markets entered the new year thinking the Federal Reserve would cut rates perhaps as many as six times, while the Bank of Japan was holding steady at the zero bound as it has for years. Theoretically, these dueling actions by the central banks should have weakened the dollar, since lower rates would make it less desirable for foreign investors to buy U.S. Treasuries.
Overcome Investing Challenges in Your Retirement
When planning for retirement, opting for a one-size-fits-all strategy might seem convenient. But I recommend not settling for generic solutions! Instead, invest in a strategy that’s designed with you in mind.
To help our process, I’ve created an Adaptive Advantage approach available in our free guide, Adaptive Advantage for Your Successful Retirement2. You’ll get insight on:
• How to overcome investing challenges and take the long view
• Using a flexible, multi-strategy approach to stay invested in all market conditions
• Choosing the right investment mix with our top-ranked strategies2
• Plus, many more ways to help you pursue your retirement, your way.
If you have $500,000 or more to invest, get our free Adaptive Advantage guide and discover how our approach can potentially help you pursue the secure retirement that you wish for.
Download Zacks Guide, Adaptive Advantage for Your Successful Retirement2
As it turns out, both central banks have done the opposite of what investors were hoping for. The Federal Reserve has scaled back expectations for rate cuts in 2024—given strong U.S. economic data and slightly elevated CPI readings in February and March—while the Bank of Japan ended their 8-year campaign of negative rates and also allowed longer duration government bond yields to float off the zero bound. This divergence in policy has impacted exchange rates.
To your question about whether a stronger or weaker dollar is better, it depends on who you ask. Some see the strong dollar as good, while others advocate the benefits of a weaker dollar. If one side wants a weaker dollar for its impact on U.S. exports and emerging markets (since EM countries typically borrow in U.S. dollars), the other side views a stronger dollar as better for attracting foreign capital and empowering the U.S. consumer. History tells us the stock market generally has no preference.
For investors, it is important to remember that relative dollar strength or weakness is just one factor of many when it comes to driving stock market performance. Many assume that a weaker dollar must be bad for stocks, but that is not necessarily true. There have been plenty of periods when the dollar has weakened and the stock market performed well, and times when the dollar has strengthened, and the stock market performed poorly. And of course, plenty of historical examples where the opposite is true.
As an investor currently working on your retirement planning, I understand how market fluctuations could affect your portfolio. So today, I am offering our free guide, Adaptive Advantage for Your Successful Retirement3, which provides a customized investing solution to help each investor make the most of their retirement savings.
You’ll get insight on:
• How to overcome investing challenges and take the long view
• Using a flexible, multi-strategy approach to stay invested in all market conditions
• Choosing the right investment mix with our top-ranked strategies2
• Plus, many more ways to help you pursue your retirement, your way
If you have $500,000 or more to invest and are ready to learn more, click on the link below to get your copy today!
Disclosure