ito20_KAZUHIRO NOGIAFP via Getty Images_dollar yen KAZUHIRO NOGI/AFP via Getty Images

Down Goes the Yen

Many argue that Japan’s attempts to boost the exchange rate are being thwarted by its own central bank, which remains committed to ultra-loose monetary policy. But the exchange rate is not part of the Bank of Japan’s mandate, and the main drivers of the yen’s depreciation are outside Japanese policymakers’ control.

TOKYO – On September 22, Japan’s government purchased yen on the foreign-exchange market for the first time since 1998. The finance ministry was attempting to stem the yen’s rapid slide, and for a while, the $20 billion intervention seemed to be working: the yen’s value rose from nearly ¥146 per US dollar to slightly less than ¥141. But not long after the intervention ended, the yen began to backslide. The dollar-yen rate remained below ¥146, the intervention point, for almost three weeks, before falling to ¥150 on October 20.

One might wonder whether this is such a bad thing. A weak currency, however, is supposed to benefit exporters – and thus boost economic growth.

The problem is that Japanese manufacturing firms have increasingly shifted their production facilities abroad in recent decades. While yen depreciation swells the profits and dividends of foreign subsidiaries, it does not boost export volumes or domestic employment, at least not immediately.

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Update Oct 21, 2022 09:27UTC

The inflation numbers in the fourth and ninth paragraphs have been updated to reflect the latest figures for September.