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HomeDiplomacyJapan’s Historic Yen Depreciation – The Diplomat

Japan’s Historic Yen Depreciation – The Diplomat

In the midst of global inflation, the Japanese yen has been depreciating throughout the year. The yen at the beginning of 2021 is 104 to US dollars. In March 2022, the exchange rate will be 115 yen to the dollar. 130 against the dollar in April. On October 20, he fell below 150 yen to the dollar, Low price update for the first time in 32 years.

The main reason for the depreciation of the yen is the widening interest rate differential between Japan and the United States. In addition, the current depreciation of the yen has accelerated due to the rising fuel costs after the outbreak of the Russia-Ukraine war in February this year. However, it will be difficult for the Bank of Japan to raise interest rates as it would have a devastating effect on the Japanese economy.

Japan’s Finance Minister Shunichi Suzuki said a weaker yen could have a negative impact on the economy.bad yenSimilarly, Japan’s top currency diplomat, Masato Kanda of the Ministry of Finance, said: explained “The downside of the weaker yen is that it pushes up the cost of importing energy and food, increasing the burden on households.”

On July 12, 2022, Suzuki met with Treasury Secretary Janet Yellen and agreed to tackle rising food and energy prices.Yellen is worth mentioning expressed Washington’s view that Tokyo’s currency intervention may be justified only in “rare and exceptional circumstances.”

On September 22, the Kishida administration finally intervened in the foreign exchange market by buying the yen for the first time in 24 years. The Japanese government intervened in the market in 1998 after the Japanese economy suffered a recession as a result of the consumption tax being raised from his 3% to 5%.Kishida on the possibility of further intervention said “Tokyo will continue to take decisive action against excessive currency movements,” he said.

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The effects of the yen-buying intervention were temporary, and on October 21, the Kishida administration and the Bank of Japan again intervened in the foreign exchange market. Said that “[w]I will not comment on whether we intervened or not. ”

From September 29th to October 27th, the Government of Japan exhaustion Yen-buying intervention to stop currency depreciation against the dollar is 6.34 trillion yen.Suzuki on continuous yen-buying intervention commented, “We are doing this to maximize the effect of smoothing out sharp currency fluctuations.” Foreign exchange intervention is having an effect, but it is only temporary due to the existence of interest rate differentials between Japan and the United States. ing. On October 24, the Washington Post claimed “It’s time to believe that Japan is accepting a weaker yen,” he said. Meanwhile, report On Oct. 26, the Japan Times reported that Yellen had respected Tokyo’s decision regarding its stealth intervention in the foreign exchange market.

November 15, Japan’s Cabinet Office announced Its Gross Domestic Product (GDP) of Japan shrunken It fell for the first time in four quarters in the period from July to September 2022, showing an annualized decline of 1.2% due to the effects of inflation and the weaker yen. On November 18, Nikkei Asia reported that Japan’s inflation rate 40 year high This is due to the increase in import costs caused by the weaker yen. The New York Times heard the news, emphasized As a result of the depreciation of the yen, the Japanese economy “unexpectedly” contracted.

At the same time, however, it should be noted that a weaker yen may have a positive impact on the economy in the long run. Yuzo Honda, professor at Osaka Gakuin University, Observed “Japanese-made products are easier to sell and relatively cheaper compared to foreign products in all global markets, including the domestic market.

On the other hand, a weaker yen may also have a negative impact on Japan’s economic security. In an article published in the Asahi Shimbun dated February 1, Kanda commented The Ministry of Finance said it would “strengthen its efforts in this area, including increasing the number of staff overseeing economic security.”

Kazuhito Suzuki, a professor at the University of Tokyo, warned that a weaker yen would adversely affect Japan’s economic security in the future. In an interview with the Mainichi Shimbun’s Weekly Economist on May 23, Suzuki said: warned Against the backdrop of the weaker yen, he said Tokyo needed to pay attention to the possibility of foreign acquisitions of Japanese companies. He also pointed out that it is possible, albeit unlikely, for foreign companies to purchase land in Japan as it is restricted by the Foreign Exchange and Foreign Trade Law, which was amended in 2019.

The prolonged depreciation of the yen had a major impact on the lives of Japanese people both in Japan and abroad.Japanese diplomats are concerned about the impact of a weaker yen on savings and living standards abroad. Said“Prices here continue to rise. If the yen continues to depreciate, I’m worried that it will affect my children’s education expenses.” Another Japanese diplomat complained“If the wages of the general public go down, the benefits [Foreign Ministry] Employees will also be laid off. Raising salaries is difficult. In other words, a weaker yen could have a negative impact not only on Japan’s economy, but ultimately on the quality of Japan’s diplomacy.

With protracted inflation a global trend, the Bank of Japan view “Current inflation is temporary and we will maintain an expansionary monetary policy.” Inflation in Japan rose to 3% in September, still sluggish compared to 8% in the US and 10% in the UK. Small. On September 15, World Bank Group President David Malpass said: concern: “Global growth has slowed sharply and may slow further as more countries enter recession. It has devastating long-term consequences for millions of people,” said Pierre-Olivier Grinchat, Economic Counselor and Research Director at the International Monetary Fund (IMF), on October 11. claimed “As storm clouds gather in the global economy, policymakers need a steady hand.”

Apparently, “perfect stormThe global economy is on the brink of stagnation and a global recession, and Japan is caught in a trap of quantitative easing and the US-Japan interest rate differential. At the same time, we must recognize that a global recession is likely to occur during a geopolitical power transition. In the era of confrontation between China and the United States in the Indo-Pacific, kindleburger trap, as argued by Joseph Nye Jr., has profound implications for the world economy and world politics. Therefore, Japan needs to take effective measures against the yen’s depreciation and be wary of a dangerously imminent global recession and the Kindleberger trap.

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