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How the weak yen is affecting ordinary households

13 Comments
By Michael Hoffman
Image: erhui1979/iStock

We like to think, in the teeth of much evidence to the contrary, that we’re masters of our fate, that as we sow so we reap, that life gives us back what we put into it, and so on. Consider, however, the sinking yen.

What the COVID-19 pandemic left standing of that homely old myth staggers anew under the assault of economic forces far, far beyond the control of individuals watching their purchasing power ebb daily. The yen shrivels. It’ll shrivel further, says Shukan Gendai (April 6-13) – maybe much further. You think it’s bad now? Brace.

We speak of “making ends meet.” The ends are not coming together. They grow farther apart. In 2014 the yen was trading at (roughly) 114 to the dollar. Ten years later it’s 153. It’s a rate that would have sounded fantastic as recently as 2020 (106), and pretty far out even in 2022 (132), when COVID raged.

 March 19, 2024 is a date that will live in economic history. On that day, the Bank of Japan abolished the world’s only negative rates regime, in effect since 2007. “Minus interest” is the colloquial term for it – meaning banks charge you interest on your deposits instead of paying it. Its abrogation meant an interest rate rise from minus 0.1 percent to around plus 0.1

This first rate hike in 17 years hardly lifts Japan’s interest rates anywhere near American or European levels (3-5 percent); still, it generated excitement. Might this mark a fresh start for Japan’s battered wage earners? Might prices slow their rise at least enough to narrow the gap a little between purchasing needs and purchasing power?

No, says Shukan Gendai. Whatever long-term significance the policy shift may have, its short-term impact will be nil and the yen’s fall will continue. How long, how far? There’s no telling. To 200, maybe. The mind reels.

It’s the sheer unpredictability of economics, for all the predictions that swirl about it, that most strikes the non-economist reader.

“A year ago,” the magazine hears from finance journalist Tomoyuki Isoyama, “financial analysts were foreseeing a return to 120 yen to the dollar. Nobody’s saying that now.”

Perhaps the ordinary consumer knows more about it than the professional economist. Adversity educates. Just as every step outside the house is a vivid education in climate change, so is every trip to the supermarket an object lesson in the yen’s weakness. It’s not just interest rates, important though they are, Shukan Gendai stresses. It’s many things coming together – wars in distant places, global strains on key resources, and various uniquely domestic factors, namely a deep and deepening worker shortage combined with a society aging so rapidly that long-term economic prospects are bleak enough to dampen any vigorous entrepreneurial spirit.

And yet the stock market soars. More on that in a moment.

“The cheap yen is having a terrible impact on Japanese eating habits,” says Hiromichi Akiba, president of the Akidai supermarket chain. He cites a litany of plagues that even domestic produce does not escape, since fodder and fertilizer must be imported. Rising scarcely less rapidly, with no end in sight, are costs connected with transport, utilities, and just about all agricultural produce as climate change wreaks havoc on growing patterns.

What can the seller do? Pass the higher costs on to the consumer? Up to a point – the point at which the consumer turns elsewhere or stops consuming. Beyond that lies commercial suicide. It’s a fine line that must be trod. “We in the industry thought the end of minus interest would ease things,” Akiba says. “Now it’s looking like they’ll only get worse.”

Of course, those whose earnings rise with inflation can shrug all this off. A month or so ago the annual “spring struggle,” the seasonal wage negotiations that for years past have left workers frustrated and their demands unmet, was generating happy headlines of record-high 5 percent raises – for who, though? Mostly for employees of large corporations. Good for them – but, Shukan Gendai reminds us, 70 percent of Japan’s workforce work for small companies that plead financial weakness and leave their staffs grumbling over pay that casts doubt on the very value of work.

Why, given the much-publicized worker shortage, doesn’t the law of supply and demand kick in and raise wages as a matter of course? One thing and another. Take transport. Drivers are in short supply. Higher pay would fill their ranks. But earlier this month a law limiting overtime took effect. Too much overtime is on one hand exploitative and dangerous – it causes accidents. On the other hand, it’s lucrative. Was lucrative.

Or nursing care, another sector dogged by long hours, wretched pay and staff shortage. But wages that might rise naturally in a free market are held down by government regulation to a level that local and national governments, ultimate footers of much of the steadily swelling care bill, can afford.

Stock prices, meanwhile, are buoyant, setting records, highest in 34 years, it’s great news for shrewd and bold investors who read the trends and see that, whatever the low yen may mean for the economy as a whole, to export-oriented industries it is a gift. They invest accordingly and profit in proportion to their shrewdness and boldness, while the industries themselves, Shukan Gendai says, reinvest their earnings not in Japan but overseas where currencies stand firmer, thus weakening the yen further.

Michael Hoffman is the author of “arimasen.”

© Japan Today

©2024 GPlusMedia Inc.

13 Comments
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Part of this is down to the strength of the dollar. In some places, it is down to terrible governance (Brexit, politically motivated supply chain restrictions and costs). The percentage slice of the population most seriously impacted by inflation is generally small, but widens when interest rates are raised. Interest rates are not a joystick for lowering inflation. They spread the pain to the middle classes, which further damages the wider economy.

In Japan, unreformed workplace culture and low profitability, particularly in smaller companies, combined with a greater reliance on imports, increases the pain. And the option of regime change doesn't appear to be likely, although it rarely achieves much, globally, aside from changing the names on the doors.

It is possible for individuals and small companies to maximise their income and minimise their spending to some extent. But ultimately, the financial pressures will hurt. Do what you can (lifestyle audit, side hustles, lower rent etc). Don't wait until you are destitute or in debt before you make changes.

The stock exchange is a casino for the rich, largely unconnected to personal finances and of little relevance to ordinary people.

8 ( +12 / -4 )

People do exactly what they politicians want them to do, people don't change they just complain about change and do nothing and this is why the same politicians stay in office and continue to do the same things over and over

8 ( +10 / -2 )

Happy to see the tabloid magazines saying what the LDP-loving mainstream media won't: the BoJ is destroying the working class with inflation and devaluation, and while they tried to delude the people into thinking it's for their own good, the workers see right through it. Now if only the people could vote these thieves out!

7 ( +17 / -10 )

I see it all the time.

Turkeys voting for Christmas.

At work, feeling the obligation to do two people's work out of a sense of giri and gaman,for 800 yen/hour.

It's an example of a very successful brainwashing programme upon the working class.

Almost Russian and Catholic in the sense of imposed guilt.

2 ( +9 / -7 )

My wife and I are among the fortunate few here whose income is in dollars. Our pensions and retirement savings wouldn't go nearly as far in the US. The weak yen/strong dollar has been very good for us.

But, I really feel for those working class folks who live payday to payday, especially the arobaito and "gig" workers. But, even the FT salarymen have it rough nowadays with inflation and meager wages. It must truly suck.

And the politicians wonder why so few people are having babies. People can barely afford their own lives, let alone afford families.

2 ( +2 / -0 )

The educated elite know that nothing is going to ever change here, but they have options. They can flee this sinking ship and find a better life elsewhere.

1 ( +9 / -8 )

Tourism is an industry where the staff make little but the owners do.

It is also sensitive to many existential pressures.

Go back decades and Japan was a place where manufacturing was the backbone of the country and there were many winners.

Now the industry has collapsed and along with it, the yen.

Add the above into the stagnant mix season with an archaic education system and lack of funding with an anti entrepreneurial mindset and we see what can only be ……a bleak future.

1 ( +3 / -2 )

DanteKH

And people are still voting for LDP, a party that works 100% for the big Corporations, and 100% against the middle class work force.

No different than people voting for Republicans in the US or Tories in the UK. The irony is that a large number of those voters are working class who consistently vote against their own economic self-interest because those parties tap into their racist, xenophobic, and nationalistic emotions, which are apparently more important to them than their actual well-being.

0 ( +8 / -8 )

“The cheap yen is having a terrible impact on Japanese eating habits,” says Hiromichi Akiba, president of the Akidai supermarket chain. He cites a litany of plagues....

A litany of plagues the article cannot be bothered to tell us about. The article just jumps from melodramatic suggestion/observation to melodramatic suggestion/observation with no detail about any of them. This is really bad, and so is this! And this! But what about that!?

Is this the journalism we were promised by AI?

Part of this is down to the strength of the dollar. In some places, it is down to terrible governance (Brexit, politically motivated supply chain restrictions and costs). The percentage slice of the population most seriously impacted by inflation is generally small, but widens when interest rates are raised. Interest rates are not a joystick for lowering inflation. They spread the pain to the middle classes, which further damages the wider economy.

Yes, more information and insight than the article. fwiw, prices were already going up in Feb 2022 when the yen was still 120 to the USD. They were going up due to disruption of Covid and the start of the Ukraine war. The trigger for the first big move to 130 was US interest rates.

0 ( +3 / -3 )

Higher pay would fill their ranks. But earlier this month a law limiting overtime took effect. Too much overtime is on one hand exploitative and dangerous – it causes accidents. On the other hand, it’s lucrative. Was lucrative.

Never was. It is exploitation.

But as @Piskian says, Turkeys vote for Christmas in Japan particularly.

Drivers to keep the same salary doing more and more time.

Nurse to take care of more and more patients for same salary.

I will change job next year since not happy with my employer. And voting for heavy change.

Japanese need to open the box and stop taking the blue pill.

-1 ( +4 / -5 )

We like to think, in the teeth of much evidence to the contrary, that we’re masters of our fate, that as we sow so we reap, that life gives us back what we put into it, and so on. Consider, however, the sinking yen.

All of neo-liberal Late Stage Capitalism and the BOJ monetary easing policies pay the lie to such sentiments that are of for the workers.

What the COVID-19 pandemic left standing of that homely old myth staggers anew under the assault of economic forces far, far beyond the control of individuals watching their purchasing power ebb daily.

Like the banker bailouts, it is all about gifts to large asset holders.

That's it.

-3 ( +10 / -13 )

And people are still voting for LDP, a party that works 100% for the big Corporations, and 100% against the middle class work force. They have zero empathy for the working class, they only care about getting more and more money from the plebe, while easing on taxation for the big companies. And from next year, another tax added to the existing 1 million, the so call baby tax, which absolutely makes no sense, and only burdens even more the population.

-4 ( +14 / -18 )

But but but...Tourism!

-5 ( +1 / -6 )

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