For decades in Japan it was accepted as a gospel: a weak currency makes companies more competitive and strengthens the economy.
Part of that promise came out last year: while the Yen to a low point of 37 years tumbled against the dollar, major brands such as Toyota Motor reported the highest win in Japanese history. Stocks rose high to include highlights.
But for the majority of Japanese households, the weakened yen has done little more than the costs of the basic costs of living, such as food and electricity. The figures that were released on Monday showed that although the Japanese economy reached pace in the second half of 2024, the inflation-restricted growth rate for the entire year delayed up to 0.1 percent. That fell from 1.5 percent the previous year.
Trying to stimulate export by weakening a currency has long been a policy instrument for countries looking for economic growth: President Trump has said he wants a weaker dollar to help US production. Japan gives an example of what can happen when a written currency, even if it helps export, crushes the purchasing power of the consumer by aggravating inflation.
“In the economy they teach us that everything has an advantage and costs, and it is about asking what is bigger,” said Richard Katz, an economist who focuses on Japan. From the yen who acts to the dollar around 153, “this is clearly not the way to run a railway,” said Mr. Katz. “It would be good to follow a lesson from this.”
The figures released on Monday show that the expenditure for households in 2024 somewhat shrinked, after the expansion in the previous three years. Unlike in the United States, where strong consumption the economy helped to rise again after the COVID-19 Pandemie, long-term weak spending in Japan has hardly left his real gross domestic product above prepandemic level.
With rates that Mr Trump has sworn to impose a lot on US trading partners, including Japan, who is expected to further strengthen the dollar against the yen, the growing public dissatisfaction about inflation is pressure on Japanese legislators – who are confronted in July Find a way to reverse the slide of the yen.
In the past, Japan largely welcomed a weak yen because the economy was highly dependent on exports. But in the past two decades, Japanese companies have delegated more of their production and sale to subsidiaries outside the country.
In the same period, Japan became more dependent on imports, including fuels such as coal and gas that were used to produce electricity. Because Japan has closed the most nuclear factories after the Fukushima disaster in 2011, import has justified about 90 percent of its total energy supply. It also spends more on imported agricultural products than producing it in your own country.
A weaker currency can help stimulate an economy if companies use the money they earn from export to increase recruitment and salaries and invest in their domestic capacity, Mr Katz said. “In Japan we see nothing of that drop,” he said. “On the contrary, consumers are simply pressed by the higher import costs.”
Inflation has led to people such as Masumi Inoue, a single mother who works at a securities company in Tokyo, has to pay more for the basics. She is responsible for the costs of everything, from bread and vegetables to the rice she uses for the school lunches of her 5-year-old daughter.
Mrs. Inoue started trying to cut back. She recently stopped lunch and started sending her daughter to Lion Heart, a non-profit organization in the outskirts of East Tokyo that offers free after-school dinners and guidance. “Getting meals a few times a week,” said Mrs. Inoue. Rising costs “have been very difficult for our family finances.”
Many others in Japan seem to share the feelings of Mrs. Inoue. In a December study, 60 percent of households said that their economic situation was worse than a year earlier, compared to only 4 percent who said the circumstances had improved. Consumer confidence is far lower where they were before the pandemic.
By growing public dissatisfaction with inflation, putting Japanese officials under pressure is to find a way to reverse the yen slide. Last year, Japan spent dozens of billions of dollars who came to the foreign exchange market to support the yen. But the currency is still weak and the expenditure is still weak, which gives a new debate to which actions the central bank of the country should take.
The slide of the yen in the past three years was largely stimulated by the long -term policy of the Bank of Japan to keep the interest rates on or below zero. The aim was to encourage inflation after decades of stagnant prices, but the low rates of Japan also brought investors to find a higher return elsewhere, causing the yen to weaken.
In the past year, the Japanese central bank was deliberately in raising rates and therefore the Yen have strengthened. Consumers were able to absorb the hit of inflation driven by a weak yen because companies – who earn more on the exchange rate – offered higher wages, the Central Bank reasoned.
Because wage profit has not kept pace with inflation in the last three years, some economists claim that the bank or Japan should turn away to give attention to overcoming deflation. Instead, they say that it must focus directly on encouraging domestic consumption – more aggressively raising interest rates, strengthening the yen and lowering input prices.
In July, the Bank of Japan found markets with an increase in the surprise interest rate, so that the yen quickly appreciated. The move caused a huge sale in the shares of companies that benefited from the weakened yen. After having confronted a strong criticism, the Bank of Japan has gone carefully since then. Last month it broadcast his plans broadly before it increases the rates again.
Sayuri Shirai, a professor in the economy at Keio University, said that the recoil to the bank's relocation of the bank has sent the wrong message the wrong message at a crucial moment. “De Boj was actually very successful in terms of appreciating the yen,” she said. “In the end, what is really the priority, stock prices or stopping the Yen depreciation? I think it is clear right now. “
