International Observation: The Sharp Depreciation Of Yen Has A Wide Impact On Japan'S Economy

Since the beginning of this year, with the major central banks in Europe and the United States turning monetary policy, the yen has weakened significantly. Affected by the conflict between Russia and Ukraine, international commodity prices continued to rise, further amplifying the impact of yen depreciation on Japan's economy.

According to the Nikkei currency index compiled by Japan Economic News Agency for the world's major currencies, the yen's exchange rate ranked second with a 5.7% decline in the first quarter of this year, second only to the Russian ruble. The yen fell 6.9% against the US dollar in March.

The sharp depreciation of the yen has worsened Japan's current account balance. Japan's current account surplus has continued to decrease since August last year and turned into a deficit in December, according to the Ministry of finance of Japan. In January this year, the reverse balance expanded to 1.1887 trillion yen.

Japan economic news agency estimated that Japan's current account deficit may be the first in 42 years this year. If the yen continues to weaken and crude oil prices rise to $130 a barrel, Japan's current account deficit will reach Y16 trillion in fiscal year 2022.

The sharp depreciation of the yen magnified the impact of the soaring international commodity prices on Japan's economy. Data released by the Bank of Japan on the 12th showed that the prices of imported commodities continued to soar, and Japanese enterprise prices rose for 13 consecutive months year-on-year. In March, the enterprise price index rose by 9.5% to 112.0.

Japan has been facing deflation pressure for a long time. The new crown epidemic has intensified and domestic demand has been sluggish. Japanese enterprises are generally cautious about raising prices. Many enterprises have not yet passed on all the price increases of raw materials to consumers, so their operations are under great pressure. Even so, Japanese consumers have to bear more and more pressure to raise prices. Oil, grain and other related commodity prices rose significantly.

The Bank of Japan predicts that the rising trend of corporate prices will continue, with inflation likely to reach 2% after April. Kuroda, the central bank governor, pointed out that this is not the demand expansion inflation that the central bank expects. In the absence of an increase in income, the rising cost inflation will squeeze the disposable income of ordinary people and reduce their purchasing power. It will not only not stimulate consumption, but also restrain demand, which is not conducive to Japan's economic recovery.

One of the main reasons for the depreciation of the yen is that the Central Bank of Japan deviates from the monetary policy of the European and American central bank. Since the beginning of this year, the Federal Reserve, the European Central Bank and the Bank of England have accelerated the pace of tightening. Countries such as the United States and the United Kingdom have stepped into the path of interest rate hikes, while the Bank of Japan is still adhering to the ultra loose monetary policy because of the weak domestic economic recovery. The market judges that the interest rate difference between yen and USD will further expand in the future, and the operation of selling yen will increase.

In addition, the depreciation of the yen also has structural reasons for the high dependence of the economy on imports. With the continuous rise of international commodity prices, Japan's import volume has continued to rise. Although the depreciation of the yen is conducive to Japan's increase in exports, some experts believe that the effect of reducing the current account deficit by expanding exports has been significantly reduced. The high oil price and the devaluation of the yen have led to a surge in demand for us dollars and a large amount of capital outflow from Japan.

Japanese finance minister Junichi Suzuki said that the stability of the exchange rate is very important. The government will pay close attention to the trend of the foreign exchange market and its impact on Japan's economy. At the same time, it will maintain close communication with the monetary authorities such as the United States to deal with it properly.

Japanese businesses are worried about the continued depreciation of the yen. According to a media survey, 76% of the companies said it was difficult to cope with the situation that the exchange rate of yen to us dollar fell below 125:1, and 94% of enterprises said that they could not bear the exchange rate of 130 yen to 1 US dollar.

Experts believe that under the circumstances of the US Federal Reserve's tightening attitude and the continued high international commodity prices, the yen's exchange rate against the US dollar will continue to weaken in the future, and may even fall to 140-150 yen to 1 US dollar at the end of this year and early next year.