by Andreas Hohenadl, Euro on Sunday
Japan’s Finance Minister Shunichi Suzuki is currently watching the development of the domestic currency with eagle eyes. “We are currently watching movements in the foreign exchange markets very closely and their impact on the Japanese economy,” he said in Tokyo last week. It is not without reason that many eyes are currently on the yen. As the new year was just days old, Japan’s currency slipped to a five-year low of 116.35 yen against the US dollar.
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Weak recovery period
The conditions for the greenback and the yen could hardly be more different at the moment: while the US central bank is increasingly shifting towards a course of future interest rate hikes, the Bank of Japan (BOJ) remains adamant about its ultra-loose monetary policy. Of the large industrial nations, Japan has recovered the least from the corona crisis. Measured by the Topix index, the stock market recorded a plus of only ten percent in 2021, lagging behind the Dow Jones and the DAX.
It is understandable that the BOJ does not want to take its foot off the gas just yet. Especially since the inflation rate remains well below the target of two percent. And traditionally, Japanese policy favors a weak yen as it provides a competitive advantage for the country’s export sector.
But this attitude seems to be gradually changing. BOJ Governor Haruhiko Kuroda recently pointed to the fact that many Japanese companies have outsourced their production abroad. Therefore, a weak yen would no longer increase export volumes to the extent that was previously the case. At the same time, the weak national currency is an increasing burden on households, since Japan is becoming more and more dependent on raw material imports. Consumers’ willingness to spend is currently very subdued, consumer spending has fallen for the fourth month in a row.
Will the BOJ do anything about the further weakening of the yen? Observers consider that rather unlikely. Japan has not intervened in the foreign exchange market since 2011, when the Fukushima nuclear accident shook the country. And the current development of the yen, according to many analysts, merely reflects the country’s weak economy, declining competitiveness and mounting debt.
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