Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Analysis-In Japan, a weaker yen may not be the blessing it once was

EconomyNov 25, 2021 11:25PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: A U.S. hundred dollar bill and Japanese 10,000 yen notes are seen in this photo illustration in Tokyo, February 28, 2013. REUTERS/Shohei Miyano/File Photo 2/2

By Tetsushi Kajimoto

TOKYO (Reuters) - A weak yen, once seen as favourable for Japan's exports-focused economy, has now become a pain point as it eats into household finances and confounds policymakers.

A gradual shift by Japan's manufacturers to offshore production means a weak yen has become less of a boon for local exporters than it was about a decade ago.

That shift means some at Japan's finance ministry, which is in charge of currency policy and known to step in to counter sharp yen rises, are now paying more attention to the downsides of a weaker currency, namely the effects of higher import costs.

Putting those concerns into focus this week, the dollar hit 115.525 yen, a level not seen since January 2017, as expectations for higher U.S. interest rates propped up the greenback and Japan's economic outlook darkened.

"A weak yen pushes up import prices, weighing on profits at companies dependent on raw materials imports and household purchasing power," Citi economist Kiichi Murashima noted. "The negative impacts of a weak yen may be larger than before given the penetration ratio of imports is on the rise."

Reversing the strong yen trend through massive monetary easing was one of the key goals of former Prime Minister Shinzo Abe's "Abenomics" stimulus policies over his eight years in office to 2020. Prime Minister Fumio Kishida is expected to follow this strategy.

Over that period, the yen lost 50% against the dollar. However, export volumes remained mostly unchanged, suggesting a weaker currency, while still beneficial for Japanese companies abroad, has not necessarily made the country's goods more attractive to foreign buyers.

A quarter of Japanese manufacturers used offshore production in 2020, compared with 18% in 2010, according to a survey by the Ministry of Economy, Trade and Industry.

The 2011 earthquake and tsunami accelerated that trend, swinging the trade balance into deficit as exports slowed and imports of fuel surged.

Exports now make up roughly 15% of Japan's economy as of 2020, the second smallest contribution among OECD nations after the United States and down from 17.5% in 2007.

In contrast, the consumer sector's share of GDP has held steady at 53%, making the economy more vulnerable to the surge in imported goods prices caused by a weaker yen.

Up until 2011, Japan would intervene heavily to stop a strong yen from crimping the competitiveness of exports, but it has also on rare occasions stepped it stop the currency falling.

The last time Japan intervened to stop yen declines was 1998 during the Asian Financial Crisis when the dollar broke above 146 yen.

Analysts think such a move is highly unlikely this time, but some analysts see 125 yen as a potential line in the sand.

A Reuters' survey of companies earlier this month showed about third of respondents expected profits to decrease if yen weakness persists.

LESS BANG FOR YOUR YEN

Importantly for policymakers, a battered currency has sapped Japanese households' purchasing power, giving them less for what they pay.

The yen's dwindling value has pushed up prices of brand-name imports ranging from luxury cars to expensive watches to smartphones as well as foodstuff such as U.S. beef imports.

For example, the price of a new-model iPhone has tripled to 190,000 yen over the past decade, equivalent to 60% of the average monthly salary in Japan. Over that period, however, salaries have remained broadly unchanged.

While Bank of Japan Governor Haruhiko Kuroda maintains the merits of yen declines still outweigh the downsides, such a view is not evenly shared.

"The current yen weakness is rather negative, undermining Japanese purchasing power in the long run," said a government source with knowledge of the matter, stressing the need to fix public debt and raise productivity to make Japan more competitive.

Some central bankers have also acknowledged the challenge.

"For major companies with operations overseas, a weak yen gives a significant boost to their profits," BOJ board member Junko Nakagawa told Bloomberg in an interview published on Friday. "On the other hand, a weak yen strains firms with domestic operations by pushing up import costs."

Analysis-In Japan, a weaker yen may not be the blessing it once was
 

Related Articles

Bitcoin extends downtrend, falls 12.1% to $47,176
Bitcoin extends downtrend, falls 12.1% to $47,176 By Reuters - Dec 04, 2021 1

(Reuters) - Bitcoin dived 12.14% to $47,176.09 on Saturday, losing $6,567.6 from its previous close. Bitcoin, the world's biggest and best-known cryptocurrency, is down 31.6%...

Bitcoin tumbles 5.5% to $53,436
Bitcoin tumbles 5.5% to $53,436 By Reuters - Dec 03, 2021 1

(Reuters) - Bitcoin plunged 5.5% to $53,435.9 at 22:04 GMT on Friday, losing $3,112.06 from its previous close. Bitcoin, the world's biggest and best-known cryptocurrency, is...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email