Japanese Nihon Keizai: "Yen's real value falling to 1970s level"

[Photo by AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] The real value of the Japanese yen has fallen to the level of 50 years ago, increasing the burden on the Japanese economy, the Nihon Keizai Shimbun reported on the 17th.

On this day, the Bank for International Settlements (BIS) announced that the real effective exchange rate of the yen in October was 68.71, the lowest since July 2015. The yen's real effective exchange rate fell to 67.6 in June 2015, reaching the level of 1972.

The real effective exchange rate is an indicator that shows the real value of each country's currency by considering the prices and trade weights of 60 countries worldwide. It is based on 2010, and if the figure is above 100, it means the currency is overvalued compared to the base year 2010, and if it is below 100, it means it is undervalued.

The yen's real effective exchange rate peaked at a record high of 150 in 1995 and has been on a downward trend since. After plummeting to the 60 range in 2015, it recovered to the 80 range but is now falling again. This year, the yen's real effective exchange rate has dropped by 9%.

In the past, a weak yen boosted Japan's export competitiveness and helped the Japanese economy. However, as the economic structure changed, the effect of a weak yen has weakened. Many companies have relocated their bases overseas, reducing the extent to which export competitiveness strengthened by a weak yen contributes to the economy. The share of manufacturing in Japan's gross domestic product (GDP) has decreased from 35% in the 1970s to the 20% range in 2010.

Currently, the weakness of the yen rather highlights disadvantages such as reduced purchasing power and increased import price burdens.

After the Great East Japan Earthquake in 2011 and the nuclear power plant accident, Japan increased its use of fossil fuels. A weak yen causes an increase in import costs for oil, coal, and other resources. Recently, as energy prices have risen, the cost burden has grown even larger. Nihon Keizai pointed out that trade conditions have deteriorated due to the weak yen and rising oil prices, resulting in significant economic losses.

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