For decades in Japan, it has been accepted as a Gospel: a weak currency makes companies more competitive and boost the economy.
Part of this promise came true last year: as the yen collapsed at a low 37 -year -old against the dollar, big brands such as Toyota Motor reported the highest profits in Japanese history. Stocks increased to record high.
However, for the majority of Japanese households, the weakened YEN did nothing more than to increase the cost of basic living expenses, such as food and electricity. The figures released on Monday showed that while the Japan’s economy was pace in the second half of 2024, the growth rate that has been adapted to inflation for the whole year slowed to 0.1 %. This was under 1.5 % in the previous year.
Trying to stimulate exports by weakening a currency has long been a policy tool for economic growth countries: President Trump said he wants a weaker dollar to help American construction. Japan gives an example of what can happen when an undervalued currency, even if it helps export, crushes consumer market power by worsening inflation.
“In finances, they teach us that everything has a benefit and cost and we are going to ask what is bigger,” said Richard Katz, an economist who focuses on Japan. From the yen, which is negotiating about $ 153 on the dollar, “this is not clearly the way for a rail to run,” Mr Katz said. “It would be good to take a lesson from it.”
The data released on Monday shows that household spending was slightly reduced in 2024, after expanding in the past three years. Unlike the United States, where strong consumption has helped the economy return after the COVID-19 pandemic, prolonged weak spending in Japan have left its real gross domestic product just above the landscapes.
With the invoices that Mr Trump has promised to impose widely on US trade partners, including Japan, is expected to further strengthen the dollar against the yen, increasing public discontent with inflation exerts pressure on Japanese legislators – High House in July – Find a way to reverse yen’s transparency.
In the past, Japan has welcomed a weak yen to largely because its economy was largely dependent on exports. However, in the last two decades, Japanese companies have transferred more than their production and sales to subsidiaries outside the country.
At the same time, Japan was more dependent on imports, including fuels such as carbon and natural gas used to produce electricity. As Japan closed most of its nuclear factories after the 2011 Fukushima disaster, imports represented about 90 % of its total energy supply. It also spends more on imported agricultural products than it produces on the domestic market.
A weaker currency can help stimulate an economy if companies use the money they make from exports to increase intake and salaries and invest in their domestic capacity, Mr Katz said. “In Japan, we don’t see any of this trickledown,” he said. “On the contrary, consumers are simply pressured by the highest import cost.”
Inflation meant people like Masumi Inoue, a single mother working at a Mobile Values ​​Company in Tokyo, has to pay more for the basics. She feels overburdened by the cost of everyone, from bread and vegetables to the rice she uses for the school meals of her 5 -year -old daughter.
Ms Inoue has begun to try to reduce. She recently stopped going to lunch and began sending her daughter to Lion Heart, a non -profit organization on the outskirts of East Tokyo providing free dinners after school and teaching. “Taking flavors sometimes helps a week,” Ms Inoue said. The growing cost “was very difficult for our family finances”.
Many others in Japan seem to share Ms Inoue’s feelings. In a December survey, 60 % of households said their financial situation was worse than a year earlier, compared to just 4 percent that said the conditions had improved. Consumer confidence levels are well below where they were before the pandemic.
Increasing public discontent with inflation exerts pressure on Japanese officials to find a way to reverses Jen’s transparency. Last year, Japan spent tens of billions of dollars interfering with the currency market to support the yen. But the currency is still weak and still spending weak, causing a new debate on the actions that the country’s central bank must take.
Jen’s transparency for the last three years has been largely proposed by the long -term policy of the Bank of Japan to keep interest rates at or below zero. Its purpose was to encourage inflation after decades of stagnant prices, but Japan’s low rates also led investors to look for higher returns elsewhere, weakening the yen.
In the past year, the Japanese Central Bank was deliberate for raising interest rates and therefore causing the yen to strengthen. Consumers could absorb the blow from inflation driven by a weak yen, because companies – earning more than the exchange rate – offer higher wages, the central bank said.
However, with wage earnings that have failed to keep up with inflation for much of the last three years, some economists argue that the Bank of Japan should be removed from its main goal of overcoming deflation. Instead, they say, it should focus immediately on encouraging domestic consumption – increasing interest rates more aggressively, boosting the yen and reducing import prices.
In July, the Bank of Japan hit the markets with an increase in the surprise that caused Jen’s rapid estimates. The move caused a mass sale to the stocks of companies that benefited from the fading yen. After facing strong criticism, the Bank of Japan proceeded carefully. Last month, she broadcasts her plans before raising interest rates.
Sayuri Shirai, a professor of Economics at Keio University, said the reaction to the Bank of July Move’s bank has sent the wrong message at a critical time. “The Boj was actually very successful in terms of yen’s appreciation,” he said. “After all, what is the priority, the stock prices or the interruption of yen depreciation? I think at this point, it’s obvious.”
