Japan Struggles with Yen Collapse and Trade Deficits

Japanese Yen Hits Historic Low Against USD, Fueling Economic Concerns
The Japanese yen has plummeted to ¥160.8 against the USD, marking its weakest point since 1986. This drop, a continuation of a 34% decline since June 2020 and a 53% decline since January 2012, has persisted despite significant intervention efforts by Japanese authorities, including a recent $62 billion expenditure in the foreign exchange market. These measures have proven ineffective, with officials like vice finance minister Masato Kanda expressing "serious concerns" yet taking no decisive action.
The depreciation of the yen, driven by the Bank of Japan’s sustained low-interest and monetary easing policies, has exacerbated Japan’s trade deficit and contributed to soaring energy prices. While global companies with overseas revenues and exporters benefit from a weaker yen, the overall impact is negative due to higher import costs. Additionally, rising domestic inflation is eroding profit margins.
The Bank of Japan’s recent, incremental policy shifts, including a minor rate hike and plans for quantitative tightening, have been criticized as too slow and insufficient. As inflation rises globally, Japan’s delayed response contrasts with more aggressive monetary tightening in countries like Mexico and Brazil, whose currencies have fared better against the USD.
In summary, the yen’s collapse poses significant economic challenges for Japan, highlighting the need for more decisive monetary policy actions to stabilize the currency and address inflationary pressures.