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The yen is depreciating against the dollar again. The government and the Bank of Japan must scrutinize the negative impact of the yen’s depreciation on the Japanese economy and exercise greater vigilance.
In the foreign exchange market, the yen temporarily dropped to the higher ¥149 range against the dollar, and the ¥150 level against the dollar is now in sight. This represents a drop of about ¥20 from about ¥130 at the beginning of the year.
A weak yen increases the profits of exporting companies in yen terms and improves their business performance. On the other hand, it pushes up import prices. Japan relies on imports for much of its fuel and food, and a weaker yen is a major factor in higher prices.
Gasoline prices have been held down by government subsidies, but temporarily hit an all-time high in September. Food prices are also rising sharply due to higher distribution costs and increased prices of packaging materials. With the public becoming increasingly concerned about high prices, an excessively weak yen is not desirable.
The recent depreciation of the yen has also created a new phenomenon. An increasing number of young Japanese are taking advantage of the “working holiday” program, which allows students to study in countries such as Australia and Canada while working in restaurants and other businesses.
This is because wages are low when they work part-time in Japan, and they can earn more in yen after returning to Japan if they work in foreign countries and receive their wages in foreign currencies.
In addition to the restaurant industry, many industries in Japan, including tourism and construction, are suffering from labor shortages. Many industries rely on foreign workers, but the weak yen reduces the amount of wages after conversion into the home countries’ currency.
Some say the appeal of working in Japan has diminished, making it more difficult to lure foreign workers to Japan. The yen’s depreciation may accelerate the labor shortage.
What has caused the yen to weaken is the difference in the direction of monetary policies between Japan and the United States.
In September, the U.S. Federal Reserve Board revised its projection for its key policy rate at the end of next year. There is a view that interest rates will be raised again before the end of the year.
Meanwhile, the BOJ continues its massive monetary easing policy, with BOJ Gov. Kazuo Ueda stating at a press conference in September, “We are not at a stage where we can make concrete plans” on the timing of ending the negative interest rate policy. There was widespread speculation that the easing measures would be prolonged.
If the difference in interest rates between Japan and the United States widens, it will become more advantageous to manage funds in dollars rather than yen, and the dollar will be more likely to be purchased.
In September of last year, when the yen rapidly depreciated, the government and the BOJ intervened for the first time in about 24 years to buy yen and sell dollars, halting the yen’s depreciation trend.
Finance Minister Shunichi Suzuki has applied brakes to the current yen depreciation, by saying, “We will not rule out any measures to respond appropriately to the sharp fluctuation.” It is important to be agile in dealing with speculative moves, including currency intervention.
