The value of the Japanese yen has hit its lowest level in 38 years. What caused this depreciation? This weak yen phenomenon has a dual impact on the Japanese economy........Ed
The Japanese yen has recently hit its lowest value in 38 years, or since December 1986, thus attracting attention in the international financial market. The weakness of the yen is not only a red flag for the Japanese economy. It could also affect neighboring countries’ economies, including South Korea’s, making it necessary to examine its background and impact.
The main causes of the yen’s depreciation include the Japanese government’s long-term, quantitative easing policy and the US (United States) interest rate hikes. Japan has maintained an ultra-low interest rate policy for a long time to stimulate its economy, leading to a decline in the yen’s value. In contrast, the US has been steadily raising its benchmark interest rate to curb inflation, causing the dollar to strengthen, and widening the gap with the yen. Additionally, the energy price surge due to the Ukraine war and global supply chain disruptions negatively impacted the Japanese economy. For Japan, which heavily relies on energy imports, an expanding trade deficit has become inevitable, further accelerating the yen’s weakness.
The impact of a weak yen on the Japanese economy is two-sided. In the short term, it can help export companies secure price competitiveness. However, in the long term, there are concerns about inflationary pressures due to rising import prices and a decline in households’ real purchasing power. Furthermore, the weak yen could negatively affect the South Korean economy. As a country that is highly dependent on imported raw materials, the yen’s depreciation could lead to increased import costs for South Korea. Especially with a chronic trade deficit with Japan, the weak yen could reduce the price competitiveness of Korean companies.
While the Japanese government is intervening in the market to defend the yen, it’s not easy to find a fundamental solution. Experts point out that the yen’s weakness will continue unless Japan changes its quantitative easing policy stance.
The sharp decline in the yen’s value is increasing uncertainty in the international financial order. Major countries may shift towards protectionism and nationalism. South Korea should also prepare for economic risks due to external variables, and seek policy measures to respond proactively to increasing exchange rate volatility.
Yoo Tae-yeon (Planning Editor)
tyrone17@soongsil.ac.kr