円安の進行 景気への副作用に目配りせよ

The Yomiuri Shimbun
Govt, BOJ must watch carefully for economic side effects of weak yen
円安の進行 景気への副作用に目配りせよ

The yen’s weakness, which has served as a tailwind for the national economy, will no longer be welcomed without reserve if it goes too far.

The government and the Bank of Japan must conduct policy management that also keeps an eye out for side effects from the weak yen.

The yen’s exchange rate, which recently stabilized at around ¥100 to the U.S. dollar, has seen a radical swing to the weaker side in the past month, with the rate approaching the ¥110 level Friday for the first time in six years.

One of the primary factors behind the shift is that prospects of a U.S. interest rate hike became stronger due to the country’s firm business climate. As a result, the selling of yen for dollar purchases has accelerated.

The Federal Reserve Board has announced that its quantitative easing policies such as purchasing government bonds will end in October. The U.S. central bank also disclosed an “exit strategy” for returning to a more normal monetary policy by ending its zero-interest policy.

On the other hand, Japan has limped along in terms of business recovery since the consumption tax rate was raised to 8 percent in April. Central bank Gov. Haruhiko Kuroda has showed a willingness to carry out additional monetary easing.

Speaking at a news conference held after a meeting of finance ministers and central governors from a Group of 20 principal economies, U.S. Treasury Secretary Jack Lew expressed disappointment with the economic growth of Japan and the eurozone. The strong dollar is expected to continue for the time being.

Radical changes in foreign exchange rates are another concern. The government and the central bank are urged to bolster their monitoring of any speculative moves that could cause violent fluctuations.

The big picture

The weak yen expands corporate exchange gains from exports and revenues raised overseas. The Nikkei Stock Average at the Tokyo Stock Exchange has recovered to the ¥16,000 level for the first time in eight months, obviously reflecting the market’s straightforward appreciation of the favorable effect of the weaker yen on corporate performance.

But looking at the Japanese economy as a whole, there are negative aspects to a weak yen.

A weakening of the yen by ¥10 against the dollar will push up the combined profits of listed companies by ¥1.9 trillion, according to an estimate by Mizuho Bank. Unlisted firms, on the other hand, will see a profit decrease of ¥1.2 trillion.

The weak yen gives meager benefits to small and midsize firms not engaged in exports or overseas operations, as well as retail and service companies relying on domestic demand. Furthermore, these businesses will have to shoulder additional costs caused by steeply rising prices for imported raw materials and power rates. Thus, their operations are facing additional financial pressure.

It is worrying that excessive weakening of the yen may put small and midsize firms into a predicament.

Structural changes of the national economy are also a factor that cannot be overlooked. With progress in transferring production centers overseas, domestic production and exports cannot expand as greatly as before even if the yen weakens.

It is safe to say that it has become difficult for the benefits of the weak yen to be translated into the expansion of job opportunities and wage hikes. It is feared that continued sharp price increases for necessities such as imported food and gasoline amid stagnant household income could keep consumption sluggish, thereby stalling business recovery.

It is urgent to analyze in detail the impacts of the weaker yen on the national economy.

(From The Yomiuri Shimbun, Sept. 23, 2014)Speech

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