CFO's beware, FX drivers are never fixed. Post

CFO's beware, FX drivers are never fixed.

 Their weights and sometimes even their signs change continuously. 
Currency exposure is a full time job.

In G10 markets, currencies are usually explained as the result of something else:

Interest-rate differentials.
Growth expectations.
Fiscal policy.
Commodity prices.
Risk sentiment.

Over the long term, that is broadly right. But it risks treating currencies as passive scoreboards when they can also change the game.

A weaker currency raises import prices, changes corporate margins and may alter a central bank’s reaction function. A stronger currency tightens financial conditions and can weaken exports and inflation.

Japan provides a particularly interesting example.

For years, the yen was largely an output of Japan’s economic policy. Ultra-low interest rates weakened the currency, supported exporters, raised import prices and helped Japan escape deflation.

But the relationship can shift

Persistent yen weakness is now increasing import costs, reducing household purchasing power and contributing to inflation. It is creating political pressure, encouraging currency intervention and influencing the Bank of Japan’s interest-rate decisions.

The causality begins to reverse:

Previously:
Monetary policy → weaker yen → higher inflation.

Increasingly:
Weaker yen → higher inflation → tighter monetary policy.

Because the yen also funds global carry trades, this change can affect international capital flows, bond markets and equities well beyond Japan.

Currencies are therefore not completely independent variables but neither are they merely the end product of economic fundamentals.

They are part of a feedback loop:

Fundamentals move currencies, and currencies then reshape the fundamentals.
Japan may be the clearest current example of that transition:

The yen is switching from an output of the policy regime to an input that is beginning to determine it.