'Lowest in 7 Years' Yen Weakness Raises Growing Concerns in Japan

[Photo by AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Voices of concern are growing in Japan over the recent sharp depreciation of the yen.

According to Bloomberg News on the 29th, Ken'o Sakurada, chairman of the Keizai Doyu-kai, one of Japan's three major economic organizations, expressed concern at a press conference, saying, "The recent weakness of the yen is excessive." Chairman Sakurada added, "If the yen had been a little stronger than it is now, it would have been helpful to companies."

Companies such as Kyushu Electric Power and Japan Cable also expressed concerns about the yen's weakness on the same day. Kazuhiro Ikebe, president of Kyushu Electric Power, said, "The weak yen harms energy importers like us," adding, "It is very worrisome because we pay in dollars when importing energy."

After Russia's invasion of Ukraine, Brent crude oil prices soared to $139 per barrel but fell to $111 per barrel on the day. However, with the yen weakening, Japan's actual energy import costs continue to face upward pressure.

The dollar-yen exchange rate traded at 125 yen per dollar on the 28th, marking the lowest yen value against the dollar in seven years. At the beginning of this year, the dollar-yen rate was around 111.5 yen per dollar. Although crude oil prices rose about 75% in dollar terms last year, the increase calculated in yen terms approaches 100%.

President Ikebe said, "Electricity rates are rising every month due to the increase in energy prices such as crude oil and natural gas," adding, "The weak yen worsens the situation."

The increase in energy import costs leads to higher fuel costs in Japan, burdening both households and businesses. Finance Minister Junichi Suzuki also stated that it is necessary to closely examine whether the weak yen is damaging the Japanese economy.

The fundamental reason for the yen's weakness is that while major central banks worldwide, including the U.S. Federal Reserve (Fed), have shifted their monetary policy toward tightening by raising benchmark interest rates, the Bank of Japan (BOJ) continues to maintain accommodative measures.

Kuroda Haruhiko, BOJ Governor [Photo by Reuters Yonhap News]

BOJ Governor Haruhiko Kuroda maintains the view that a weak yen benefits the Japanese economy. On the 25th, Governor Kuroda stated that overall, the yen's weakness is expected to help the Japanese economy and that accommodative measures will continue.

Governor Kuroda explained that due to structural changes in the Japanese economy, the economic benefits of a weak yen, which previously appeared as increased exports, now manifest as increased net profits earned by companies overseas. He emphasized that despite changes in the economic structure, the fact that a weak yen generally benefits the Japanese economy remains unchanged.

Governor Kuroda also said that the recent rise in import prices is more due to the global increase in raw material prices than the weak yen.

He mentioned that from April, the inflation rate could rise to the BOJ's monetary policy target of 2%, and since inflation is accompanied by steady increases in wages, employment, and corporate profits, there is no intention to hasten the withdrawal of accommodative measures. However, he added that cost-push inflation caused by rising raw material prices, as seen now, without accompanying wage increases, could harm the Japanese economy.

French bank Soci?t? G?n?rale recently predicted that the yen's value could fall to 150 yen per dollar for the first time since 1990. Albert Edwards, an analyst at Soci?t? G?n?rale, emphasized in a report that exchange rate volatility has been low in recent years. Therefore, foreign exchange traders might see the recent yen decline as a trading opportunity, and increased trading could lead to greater-than-expected yen exchange rate volatility, potentially causing a sharp drop in the yen.

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