The Japanese Yen (JPY) has depreciated considerably against the US Dollar (USD) and the Euro (EUR) since the start of 2021. Analysts at Natixis explain why a weak Yen is good for Japan.
The Bank of Japan has little incentive to obtain an appreciation of the Yen
Japan’s expansionary monetary policy, while the other OECD countries have adopted a restrictive monetary policy since 2022, has caused the Yen to depreciate sharply. But in reality, the depreciation of the yen is good for Japan’s economy: It is helping to bring inflation back towards the 2% target; It stimulates exports; Since Japan has very substantial net external assets, mainly in Dollars and Euros, the depreciation of the Yen generates a capital gain on the yen value of these external assets.
As a result of these positive effects of a weak Yen on Japan, we should not expect Japan to switch to a much more restrictive monetary policy. At most, we should expect a symbolic hike in the Bank of Japan’s base rate.
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