Japan stands at crossroads of further yen weakness

A depreciated Japanese yen would have more cons than pros at this point. For instance, from consumers’ point of view, weaker yen definitely bring negative impact on their wallets since Japan imports many essential items from west and east; higher costs of imports will drive up prices of many merchandises on the store shelves sooner and later. That not only cut consumers’ purchase powers but also deter consumers from making necessary purchases. As a direct result , it will make already battered consumptions(due to tax hike) even weaker.

However, right now I would worry less about weaker yen. Instead, I think that BOJ’s desperate moves to achieve 2% inflation rate with all the costs may harm Japan’s economy more as a whole.

Yesterday, BOJ bought its first three-month bills for more than their redemption value. In plain English, that is negative-yield purchases. Such destructive action is scary. Hopefully, BOJ’s negative-yield purchases would just be a technical move rather a policy switch.

Look no further than the Apple Store to see the "blessing" of a weak yen. The prices for iPhone 6s are up significantly compared to the iPhone 4/4S a few years ago. Yet the price in US$ for those new iPhones are no more expensive than the previous iPhones.

EthanWilberSep. 11, 2014 - 08:09AM JST A depreciated Japanese yen would have more cons than pros at this point.

Problem is that Japan imports 60 percent of their food needs, meaning higher cost for the consumers. The yen’s plunge has not translated into a big jump in export growth became most of the domestic firms aleady shifted their production overseas. Japan imports rose due purchases of more oil and gas, which have shot up after Fukushima nuclear crisis, when Japan shuttered its nuclear reactors. The trade imbalance should narrow as Japan switch some of its nuclear reactors back on.

From a consumer standpoint a stronger yen is better. When the yen was below 90 there were many retail shops holding sales because of the strong yen. Even if products are made in Japan, a bulk of the raw materials are imported. The weak yen only supports the large corporations that have revenues overseas. When the money is repatriated back to Japan they get a boost to earnings which may help their stock price or which only the wealthy hold stock. Products that are exported again come from raw materials that need to be imported. So in the end the only ones benefiting from a weak yen are the large corporations and wealthy Japanese stock holders. The average consumer loses.

nikkeiboy Sep. 11, 2014 - 08:35AM JST When the money is repatriated back to Japan they get a boost to earnings which may help their stock price or which only the wealthy hold stock.

Problem is that most profit earned overseas does not return to Japan. Many of the Japanese companies don’t pay Japan taxes on profits earned abroad as long as that money remains offshore.

The economic news in Japan just gets worse everyday. With the yen now on a free fall trajectory, I hope everyone has big pockets to pay for all the massive price rises to come. Everybody must get out of the yen at once, only keeping absolute minimal necessary balances. The yen is becoming more and more worthless everyday.

Weak yen, I'm Loving it, business is Booming.

Paying higher costs for imported food and other items is a small price to pay when sales to overseas markets have taken off. The slightly higher prices on some goods at the shop is more than offset by the increase in profits, I personally don't mind if the yen drops to 120 where it was prior to the Lehman shock, and back then we didn't here all this rattle and noise about the weak yen, it was the norm and most had no idea.

Stuck in a dead end job on a fixed salary? Tough for you guys, but some of us have waited this out for 6 years, now we get rewarded.

I expect thumbs down as I know most of you on here are on fixed salary paid domestically and the effect you see is only higher prices, but really I do not care about some thumbs down on a forum, when in reality both my thumbs are UP !

Look no further than the Apple Store to see the "blessing" of a weak yen. The prices for iPhone 6s are up significantly compared to the iPhone 4/4S a few years ago. Yet the price in US$ for those new iPhones are no more expensive than the previous iPhones.

During the strong yen years back in 2010 and 2011, there was no import boon for the Japanese. When the yen climbed 30% against the dollar and euro, there was no decrease in the price of imports, a pair of Levis, a BMW car, or package of Australian beef cost no less in 2011 than it did in 2007, as Japanese distributors pocketed the extra profit, and did not pass currency exchange discounts to their customers; another example of the price-fixing so common in Japan.

The only company which lowered prices as the yen strengthened was Costco, they even lowered the prices of the pizza and hot dogs sold at their snack bars. No Japanese retailer did this. I feel sorry for the Japanese who get ripped off by their countrymen every time the go shopping.

Irrespective of the pros or cons of a weaker yen, the markets decide the level anyways. What politicians can theoretically control is policy, but they are failing to effectively do so.

The US economy may not be going great guns, but it's sure better than Japan's, has greater growth potential, and with the shale gas revolution providing an abundance of cheap energy, the US will likely have serious competitive advantages over other countries in the years ahead. The US has a rapidly improving fiscal picture too, while the Japanese bureaucracy continues to head in the opposite and wrong direction, with record spending requests being submitted to the ministry of finance for next fiscal year, and the government talking of flushing more money down the toilet on short term stimulus measures.

My money is on a still stronger US dollar against the yen, but of course I hope for Abe to fire that third arrow, rather than just trying to propel it forward by blowing hard...

sfjp330,

The trade imbalance should narrow as Japan switch some of its nuclear reactors back on.

How many they can get switched back on is the big question. A few token plants online presumably won't have a signficant impact.

StormRSep. 11, 2014 - 09:25AM JST

.Stuck in a dead end job on a fixed salary? Tough for you guys, but some of us have waited this out for 6 years, now we get rewarded.

Are you still begging loans of your in-laws or are you now earning enough to stand on your feet?

boo hoo your Iphone is going to be more expensive, buy a locally made phone instead, the economy was doing fine when the yen was at 120yen/$ level. sending your money home doesnt help the economy also. exports made Japan what is today not importing. turn the Nreactors back on, buy an electric car and Japan join the TPP, will all help in reducing Japans import costs

Although I am generally gloomy about the Napanese economic situation I have found an overseas market for certain goods in Japan that generate profits of at least 300%. Even in recessions there are opportunities.....

I expect thumbs down as I know most of you on here are on fixed salary paid domestically and the effect you see is only higher prices, but really I do not care about some thumbs down on a forum, when in reality both my thumbs are UP !

I get paid in dollars, so my salary has increased by nearly 40% over the last three years. If the yen crashes, I won't be entirely immune, but at least I won't see my personal savings erroded by inflation.

I personally don't mind if the yen drops to 120 where it was prior to the Lehman shock, and back then we didn't here all this rattle and noise about the weak yen, it was the norm and most had no idea.

The problem with this anology is that the dollar and euro have both declined in value as well, do to monetary easing and economic mismanagement in America and Europe. The effective exchange rate is now about the same as it was in 2007.

People should be outraged that their governments are borrowing and spending so heavily, driving down the value of their country's currencies, and robbing the people of the value of their labor and savings. Almost all the benefits of these easy-currency policies are going to the stock market, and the politicians themselves.

In 2008 we had a collapse due to poor banking policies inflating the housing market, and people called for the banker's heads. Now your governments are doing the exact same thing in a slightly different way, and which is likely to cause the same results. Instead of a housing bubble, we now have a stock bubble caused by an over-leveraged market funded by money borrowed at low interest from the central banks. The money borrowed was printed out of thin air, but when the house of cards falls, it is the taxpayers who will be stuck with the losses.

the Bank of Japan is expected to keep its ultra-easy policy until it meets its target of two percent inflation.

Inflation comes from increased demand for a limited/scarce supply of goods and services.

The best way to spur inflation is to increase demand. The only way demand will increase is for consumers to have a higher disposable income.

Higher wages can come from employers, of course. However, the best way to increase net wages is to significantly reduce the tax burden on consumers.

Leaving the consumption tax at 5%, while cutting taxes on income would have generated much more tax revenue for the government.

There are positive and negative factors coming from the weaker yen, but I would say the achievement of the 2% inflation target should be a prioritized, as deflation has been the worst issue for the Japanese economy over the past 17 years,” said Junko Nishioka, chief economist at RBS Securities Japan.

Deflation hasn't been the worst issue. It has been anemic economic growth. Japan's economy has been limping along for more than a decade now.

The Bank of Japan's actions may have a positive effect, but not enough to change the lot of working people, certainly not enough to get the economy growing at a more healthy pace.

There are positive and negative factors coming from the weaker yen, but I would say the achievement of the 2% inflation target should be a prioritized, as deflation has been the worst issue for the Japanese economy over the past 17 years,” said Junko Nishioka, chief economist at RBS Securities Japan.

Funny how a highly paid economist who works at an international bank is so ignorant. He has the cause and effect completely backwards. It isn't deflation which is causing the economy to decline, but a declining economy which is causing deflation. Is the whole world stupid? No wonder RBS had to cut down it's investment bank, and cut 30,000 jobs.

Stuck in a dead end job on a fixed salary? Tough for you guys, but some of us have waited this out for 6 years, now we get rewarded

StormR -- 6 years of "waiting it out" to finally get rewarded? Hardly a huge "success story" to be pounding your chest about. Especially since the overall Japanese economy is still in a very precarious position, and could easily turn down again in the near future.

Personally, I'm happy that I executed a buy-out for my Japanese company a few months after 3/11 and got out. So, yes, the fact that the remainder of my payout is in yen, the drop in value hurts me a bit. But my rent in Japan alone was near $4000 a month, where my mortgage back in the states it is a fraction of that. So I'm still way ahead of the game. And my future financial well-being is not dependent on voodoo magic -- otherwise known as "Abenomics".

Why aren't exchange rates pegged?

Demand and supply are left to determine the price of most things. What would be the benefit of having some bureaucrats determine what the relative value of one currency versus another should be?

How would it be bad for economies if the exchange rates were pegged?

OK, let's assume a government decrees that it's currency A should be worth so much of currency B. If they get it wrong, and prices in currency B are more attractive than in currency A, holders of currency A will move to exchange them for currency B and take advantage of the better prices. To prevent demand/supply from shifting the exchange rate, the government establishing the peg will need to sell lots of currency B to try to keep the rate from moving. But the government doesn't have an unlimited supply of currency B to be able to do such a thing. The government could end up squandering the wealth of it's people trying to prop up it's currency A at a fundamental unsustainable level, and all for what reason?

Even if a peg could be maintained initially, changing economic conditions would eventually see demand/supply balance shift.

These days, in free, open economies, no one is forced to hold solely their own currency. Free people can reduce their exposure to currency risk by diversifying their savings into multiple currencies. Same goes for businesses.

Printing and therefore weaker yen is only way to pay off the debt. Yes, i remeber when it was 1 GBP = 250 yen. I was being paid in GBP then. bought my car for peanuts!

"People should be outraged that their governments are borrowing and spending so heavily, driving down the value of their country's currencies, and robbing the people of the value of their labor and savings."

Much of the govt borrowing and spending are to compensate for the private sector's refusal to hire, pay raises to match labor productivity gains and invest at home,,,rather than in China.

"People should be outraged" corporations are earning the highest profits in history and sitting on piles of cash, yet paying their workers less and less and less.

Folks, get yourself ready, it looks like BOJ may make its move on monetary easing soon.

For yen, I think that 102.00 buys a US dollar would be sweet pot for all parties involved, but if it goes above 108.00 for a US dollar, that would be problematic for Japan’s economy in short and medium terms.

As I am here for the duration I bought a big slot of dollars at 88 yen, a few years back, waiting for the 108/109 and... buying back, there's no point waiting for Godot, you have to act.

Real Inflation - for the man in the Street has risen far more than 2%, you've only got to compare what you could buy 1 year ago to what you can do now to understand that. If you want the same price (or higher) than last year, you currently get a reduced quantity. Politically this is a ticking Time-bomb since Japan has a flat Sales Tax rate across everything, which does not distinguish between daily subsistence needs, and Luxury goods as some other Countries have. House purchases are Taxed as the same rate as, Ferrari's and Bread, and Rice. A rise to 10% from 8% will simply tighten the belts further. Is that really fair ?

Perhaps a more radical approach is needed , instead of raising - why not reduce. drop the rate to 3% again, cut back Services, yet increase charges upon them if deemed unessential, and restructure taxation to minimal upon subsistence items, and top rate upon luxury items.

Unfortunately it seems that Japan has an inability to do this, which does not reflect well upon their inherent innovative culture.

is really indicative of their lack of technological practicality. They're unable to apply disruptive innovative ideas that they may have themselves upon their own Society, except from those that are completely Distructive - such as War upon America back in the 40's... and now a lack of Government reform, plus pushing the burden of mismanagement upon the populace... something has to give.

"...contributing to Japan logging its largest-ever trade deficit of 13.75 trillion yen ($129.30 billion) in the fiscal year that ended in March."

Chew on that tidbit for a while. Gonna get much worse.

Much of the govt borrowing and spending are to compensate for the private sector's refusal to hire, pay raises to match labor productivity gains and invest at home,,,rather than in China.

Nonsense. The private sector hires and gives raises when there is demand. There is no demand in Japan, Japanese businesses rely mainly on the domestic market, which is rapidly shrinking. The reason the population is shrinking is the high cost of living in Japan. The reason the cost of living is high is because Japan's domestic market is more or less closed to foreign competition. For median net income, Japan rates 22nd on the OECD list of developed countries.

Businesses exist to earn a profit. For each yen they spend, they need to get more than one yen in return. They cannot borrow endlessly like the government does, though Japanese companies have been trying. You have mentioned that Japanese companies are 'sitting on piles of cash." This is not the case, almost without exception, Japanese companies are sitting on piles of debt. They cannot hire more people when they are already overstaffed, they cannot give raises when their number of customers and amount of sales continue to fall.

The government cannot continue to intervene by trying to stimulate an economy in which the population continues to decline. All of the stimulus spending so far has done little or nothing to help the economy. It has been spent on public works projects which have little benefit to the public, but great benefit to contractors and the friends of politicians. The monetary easing perfomed by the central bank benefits no one. It is allowing the governement to slide more deeply into debt, and allowing companies to pad their portfolios by borrowing from the central banks at low rates to buy back and drive up the value of their own stocks.

You make the dangerous mistake of thinking that the current government has any interest in the people and the private sector. Politicians care only about getting into power, and staying in power, and spending as much of the people's money as they can borrow, print, or steal. Corporations are saints in comparison.

Japan stands at crossroads of further yen weakness

They are not standing at a crossroad. They are standing in the edge of a precipice and teetering extremely dangerously with no safety net. .

"They are not standing at a crossroad. They are standing in the edge of a precipice and teetering extremely dangerously with no safety net. .."

Agree

They are standing in the edge of a precipice and teetering extremely dangerously with no safety net.

This is the path Japan has been through and knows what to do . There are always both positive and negative aspects on exchange rate changes.

I have found an overseas market for certain goods in Japan that generate profits of at least 300%.* theres you problem straight away trying to make huge profits from little work, your best to sell those items at around 10-20% profit margin, youll sell heaps of them and it keeps many new sellers from entering the market since the profit margins dont seem that attractive. I know i export many different items from japan but sell them at small margins 5-20%. but in large quantities.