Who Welcomes Yen Decline

The biggest group in Japan that welcomes the decline of Japanese Yen against US dollar to the level of $1=¥100 would be math haters, because it’s easy for them to calculate exchanging rate. Nevertheless, the news reports focused on another group, the  exporters. Although this trend in foreign exchange is generally recognized as favorable result of Abenomics, more people are getting skeptical on this market-oriented economics. Negative aspect of the steep recovery is looming.

Japanese economic correspondents sometimes report only the positive side of economy. Most reports explained the reason of Yen’s decline as a consequence of bold monetary ease led by Prime Minister, Shinzo Abe, and the Chairman of the Bank of Japan, Haruhiko Kuroda. Although they actually made a momentum of this trend, recent moves of foreign exchange has been motivated not by the policies in Japan, but by the recovery in US economy. It is not Yen’s decline, but US Dollar’s hike.

The point now is how to maintain this rate. If US Dollar keeps on appreciating, the impact on importers in Japan will be devastating. Although both Abe and Kuroda are optimistic about their handling of monetary policy, Japan has no power for controlling US economy. Market may uncontrollably harm Japanese economy. Are they buying Japanese Yen, when the market heats up? The effect will be limited. It is false manipulation of foreign exchange, anyway.

Pressures from overseas are coming. Group of Seven meeting by financial ministers and monetary leaders, started on Friday, is expected to discuss foreign exchange. Frustrated by independent decline of Japanese Yen, G7 is going to reconfirm to avoid competitive cheap currency. It is unclear whether the parties accept Japan’s explanation that the monetary ease was aimed at domestic effect, not foreign exchange.

The rate of long-term debt is ominously getting high. Debt market in Tokyo sees a trend of investors to shift money from debt to stock. The Ministry of Finance reported on Friday that national financial debt hit a new record of ¥991 trillions at the end of FY 2012. Once national bond loses its credibility, it may follow the same course as Greece.

As long as stock market is rallying, people are optimistic about negative side of current economic policy. Increase of commodity prices, however, is steadily harming people’s lives. Although the government expects 2% hike of commodity prices, it does not include the impact by the rise of consumption tax rate, 3% next April and additional 2% on October 2015. Wage has no indication of rise so far. No exporter who welcomes this cheap Yen seen so far, except carmakers.