Revitalizing Japanese Economy: Excessively Weak Yen Undermines National Strength / Firms Must Adopt Proactive Investment Mindset

Editorial

15:33 JST, January 8, 2026

Coming out of a long tunnel of stagnation, this New Year signals the start of change. The transformation of the Japanese economy cannot be achieved by a single policy alone. The future lies beyond the path of carefully crafted measures that have been put in place one after another.

Companies must break away from their contractionist tendencies and move forward.

Think outside the box

To that end, it is necessary to first reaffirm that the world surrounding the Japanese economy has significantly changed.

The so-called “lost 30 years” — marked by stagnant prices, wages and interest rates — can be said to have been inseparable from a phobia of the yen appreciation.

Being put on the defensive, companies have been busy with their cost-cutting efforts and lost their entrepreneurial spirit to take risks and develop new products and services.

Today’s issues are not the strong yen but the weak yen, not deflation but inflation. Companies must not remain trapped by fixed notions and values.

The era of ultralow interest rates has ended. The Bank of Japan raised its policy rate to around 0.75%, the highest level in about 30 years. Long-term interest rates have exceeded 2%, reaching their highest level in about 27 years. The Nikkei Stock Average is trading at a high level, exceeding 50,000.

Meanwhile, the exchange rate hovers at around ¥156 per dollar. Compared to 2011, when it reached its greatest strength since the end of World War II in the ¥75 range, it has fallen to less than half that value.

This excessively weak yen is undermining the nation’s strength and shaking Japanese confidence. In terms of gross domestic product, the impact on dollar-term comparisons is significant. Japan fell to fourth place in 2023, overtaken by Germany. It is likely to be overtaken by India this year as well.

If the Japanese economy regains its strength, the weak yen should be corrected.

Japanese companies were not fundamentally lacking an entrepreneurial spirit. Many visionary entrepreneurs paved the way for a new era, such as Sony Corp. cofounder Akio Morita and Honda Motor Co. founder Soichiro Honda.

Currently, Japanese companies hesitate to invest, and their internal reserves — accumulated earnings — have surged to a record high, exceeding ¥630 trillion. However, in a “world with interest rates,” companies are being tested on how they effectively use funds. Hoarding funds produces nothing but a figure reflecting corporate negligence.

If companies enhance their profitability through investments and achieve substantial wage increases, it could break a sense of stagnation that has been intensified by prolonged high prices.

Tariff rates have not been raised as high as initially expected under U.S. President Donald Trump’s tariff policy, dealing a limited blow. Companies are now at a stage at which they should shift to active investments and aggressive strategies.

The United States is strengthening its “America First” policy, while China continues its “economic coercion.” Geopolitical risks, such as the situation in Ukraine, are only increasing.

Trust is declining not only in China but also in the United States. Under such circumstances, Japanese companies are well-positioned to pursue international business expansion. Trust in Japan and Japanese companies, which value the rule of law and free trade rules, remains high.

New public-private cooperation

Japan is the ideal location for building supply chains from an economic security perspective. The government should attract investments not only from Japanese companies but also from other countries.

It is also vital to explore new forms of public-private cooperation. Skepticism toward neoliberal free market capitalism has grown, and the importance of the state’s role in industrial policy has significantly increased even among advanced nations.

It is timely that the administration of Prime Minister Sanae Takaichi seeks to achieve a “strong economy,” promoting measures to encourage investments through public-private cooperation in 17 key sectors, including artificial intelligence, semiconductors and shipbuilding.

However, the public sector lacks a deep understanding of business. Industrial measures promoted by the Economy, Trade and Industry Ministry in such sectors as the electronics industry have a history of failure. The public sector should focus solely on encouraging the private sector and ensure the effective use of funds.

Rapidus Corp. plans to mass-produce domestically manufactured advanced semiconductors starting in fiscal 2027, and a new company to be established with an about ¥3 trillion public-private investment will develop AI domestically. They will serve as litmus tests for public-private cooperation.

Appropriate fiscal, monetary policy needed

Stable exchange rates and prices form the foundation for protecting the lives of the public and promoting corporate growth. The government must not mismanage the handling of fiscal and monetary policy.

The BOJ intends to consider additional interest rate hikes this year based on economic and price conditions. Normalizing monetary policy is necessary to correct the excessive depreciation of the yen. However, given the interest rate levels, which have not been seen for a long time, the timing of the interest rate hikes must be carefully determined.

Efforts for fiscal consolidation cannot be neglected. Although the Takaichi administration advocates “responsible and proactive public finances,” gaining market confidence is indispensable.

Japan’s ratio of outstanding government debt to GDP exceeds 230%, the worst among major advanced economies. Reducing this debt will take time. Precisely for this reason, it is necessary to clearly outline a path to fiscal consolidation in the medium- to long-term.

(From The Yomiuri Shimbun, Jan. 8, 2026)