The head of the central bank was convinced to the end that the weak yen was making Japanese products more competitive.
(Photo: Reuters)
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Tokio According to the Japanese central bank, the strong exchange rate fluctuations of the national currency, the yen, are making life difficult for domestic companies. “The recent devaluation of the yen is quite strong and could make it difficult for companies to draw up their business plans,” central bank governor Haruhiko Kuroda said in parliament on Monday. “In that sense, we need to consider the negative impact of a weak yen.” This is his strongest warning yet about the risks of the currency’s recent depreciation.
Overall, a weak yen is good for the economy because it increases the value of profits made by Japanese companies abroad. However, strong fluctuations within a short period of time are harmful. Currently, about 126 yen has to be paid for a dollar, a month ago only about 115. This means that the yen is weaker than it has been for about 20 years. The reason for this is the interest rate differential: In the USA, the Fed has abandoned its zero interest rate policy and signaled further hikes. This makes the dollar more attractive to investors.
Kuroda has always touted the merits of a weak yen, which makes Japanese products cheaper elsewhere and therefore more price-competitive. At the same time, however, it could also add to the already rising cost of importing fuel and food, at the expense of consumers’ purchasing power.
“In a situation like the current one, where companies have not yet raised their prices and wages enough, a weak yen is not desirable,” Finance Minister Shunichi Suzuki said. However, the minister left open whether Tokyo was prepared to intervene on the foreign exchange market in favor of the domestic currency.
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