Japan Yen Real Value Hits Record Low... Experts Say "Further Decline Possible"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Although the value of the Japanese yen against the US dollar hit its lowest point in five years, there are forecasts that the real decline in the yen's value will be even more severe.

According to Bloomberg News on the 6th (local time), the yen's value, evaluated by JP Morgan Chase's Real Effective Exchange Rate (REER) index, recorded an all-time low of 66.3206 as of the 4th, breaking the previous low of 66.8975 on June 8, 2015.

The Real Effective Exchange Rate is an adjusted figure that reflects the real value of a currency by incorporating nominal exchange rates and price changes in various countries.

Bloomberg assessed, "The nominal value of the yen has declined, and since Japan's inflation is lower than that of most other trading partners, the yen's REER index has fallen even more significantly."

While the US Consumer Price Index (CPI) soared 6.8% year-on-year in November last year, reaching the highest level in nearly 40 years, Japan's inflation rate has remained below 1% annually since the end of 2018. Japan's recent consumer price increase was only 0.6% as of November last year.

Although the US Federal Reserve (Fed) and the Bank of England (BoE) have begun withdrawing monetary easing policies, the Bank of Japan (BoJ) maintains a more cautious approach due to uncertainties related to COVID-19.

Additionally, the reduced demand for the yen, which was considered a safe-haven asset, has also had an impact.

Last year, the yen's value fell more than 10%, marking the largest decline in seven years. On the 4th, the yen traded at 116.35 per dollar, showing its weakest level since January 2017.

In Japan, concerns have arisen that the weaker yen will raise import prices and negatively affect consumers.

Among experts, there is also the possibility of further depreciation in the yen's value.

Marcel Tilliant, an economist at Capital Economics, predicted, "The yen's value could fall to 120 yen per dollar this year," adding, "The interest rate differential remains key, and if US Treasury yields rise further, it will push the yen down even more."

This content was produced with the assistance of AI translation services.