Contradictions and Truths in the Currency Market: Why the Dollar is Bought Even When the U.S. Is the Cause of War

The dollar-yen exchange rate surged to the 163 yen level at one point, marking the lowest level for the yen in approximately 40 years.

The background to the yen's depreciation is significantly influenced not only by Japan's low interest rates and fiscal concerns but also by the global momentum of dollar buying.

The phenomenon where the dollar is bought when tensions and conflicts rise globally has long been called 'buying the dollar in times of crisis'.

However, when you think about it, a question arises. Even when the U.S. is involved as a party or cause of a conflict, why is the dollar bought?

In this article, I will explain this mysterious mechanism in an easy-to-understand way.

Reason 1: Overwhelming Liquidity (Ease of Conversion)

When a crisis occurs in the world, investors and companies try to flee to safe assets that can be converted into cash immediately.

What is important at this time is whether that currency can be used all over the world. The U.S. dollar is the world's largest reserve currency by trading volume, and it can be converted into other assets immediately, even amidst any chaos.

Even if the U.S. itself is involved in the problem, the U.S. dollar is the only currency that can be settled most reliably in the world.

Reason 2: Repayment Pressure on U.S. Dollar-Denominated Debt

Companies and governments around the world have taken on massive amounts of debt in U.S. dollars.

When geopolitical risks rise and the global economy becomes unstable, lenders demand repayment or require additional collateral. As a result, the movement to secure U.S. dollar cash urgently intensifies globally, triggering a stronger dollar.

Reason 3: Impact of Energy Trading (Petrodollar)

When tensions rise in the Middle East and elsewhere, crude oil prices tend to rise.

Since global crude oil trading is basically conducted in U.S. dollars, when crude oil prices rise, the amount of U.S. dollars needed to buy crude oil also increases.

Furthermore, since the current U.S. is also one of the world's largest energy exporters, high crude oil prices themselves act as a tailwind for the U.S. economy and the dollar.

Summary

Investors and companies working in the market are not driven by moral correctness, but by practical benefits, such as whether settlements will stop when a crisis occurs.

As a result, regardless of whether the U.S. is a party involved, funds gather in the U.S. dollar, which is the most resilient infrastructure in the world.

By knowing these underlying mechanisms, rather than just the surface news, you will be able to understand the movements of exchange rates and global affairs more deeply.