The yen sinks and sinks, no end in sight. For a resource-poor nation as heavily dependent on imports as Japan, it’s potentially disastrous. The exchange rate as of this writing approaches 130 yen to the dollar – down from an average 106 in 2020. What if it falls to 150? asks Shukan Gendai (April 23).
It could happen, freelance foreign exchange specialist Yasunori Takano tells the magazine. Almost anything could, it seems, in a geopolitical, economic, demographic and meteorological climate in which almost everything has and is. The salient events are Russia’s invasion of Ukraine, COVID-19, global warming, and – generally in all developed countries but most extremely in Japan – demographic aging.
The yen is at its lowest in 20 years – which is not the worst of it, says Shukan Gendai. In real terms, taking past and present costs of living and other factors into account, we’re actually going back not 20 years but 50, to the living standards of the 1970s.
There seems no stopping the yen’s dive. Even the ruble, battered by sanctions, has recovered somewhat. Not the yen. This is extraordinary. The yen over the past few decades has been the safe currency, the one traders turned to when the dollar and others destabilized.
What’s different now?
Two things in particular, Shukan Gendai explains. First, the U.S. Federal Reserve Board is fighting rampant U.S. inflation with higher interest rates. Japan’s rates remain close to zero. No wonder traders are selling yen for dollars.
Second, Japan’s economic health is clearly at risk. War and pandemic in tandem have generated soaring prices for the energy, food and raw material imports on which resource-poor Japan depends. For eight straight months Japan’s trade has been in deficit – import costs exceeding export earnings. The Lehman Shock of 2008 and the 2011 Tohoku earthquake and nuclear meltdown were catastrophic – but the yen held steady. Not now.
The 1970s was not a bad decade. World War II was a generation past, the new postwar economy had taken flight, prosperity was rising and spreading beyond anything the nation had known in its long and mostly poor history. In some ways it was better then than now. The middle class, now shriveling, was then expanding.
Still, for what’s left of today’s middle class, going back to 1970s standards would mark a decline. Back then, Shukan Gendai recalls, only celebrity entertainers and athletes could afford to travel abroad. It seems hard to imagine today.
That’s picturesque but relatively trivial. Foreign travel is not indispensable. Closer to the bone is the rising price of food, gasoline, energy generally. The 1970s were different in so many ways. Few married women worked then; now most do. The population then was young and growing; now it’s elderly and sinking. Then, full-time jobs were the rule; now, 40 percent of the labor force is part-time and poorly paid. Then, wages rose faster than inflation; now, they stagnate.
High energy costs have long bedeviled the Japanese economy. Only government subsidies are keeping gas prices at the pump down to around 170 yen a liter. Without the subsidies, Shukan Gendai calculates, we’d be paying 250; figuring 150 yen to the dollar, even subsidies wouldn’t get it down much from that.
Liquid natural gas, thanks to the war, is back in demand, the switch from fossil fuels to cleaner energy yielding temporarily to more urgent priorities. But prime among producers is Russia, currently under sanctions. Furthermore, producers worldwide had before the war cut back production, seeing no future in it. Stocks are limited. How high will prices rise? That depends largely on the Ukraine War. How and when will it end?
There’s no more predicting the one than the other.© Japan Today