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Editorial: Fall of yen a wake-up call for Japan to rebuild economic structure

The Japanese yen is showing no sign of hitting bottom. Its rapid depreciation is not just the result of the U.S. dollar rising worldwide, but also suggests the global market is "selling off Japan" as the world's third largest economy weakens. The Japanese government and financial sector should deal with the situation with a sense of crisis.

    The yen recently slipped briefly to the 150-yen zone against the U.S. dollar -- a 32-year low. The main cause was the difference between monetary policies taken by Japan and the United States. The U.S. Federal Reserve Board, emphasizing controlling inflation, continues major interest rate hikes. The Bank of Japan, on the contrary, has maintained its ultra-easy monetary policy to prop up the economy.

    What we are seeing is a situation where the high-interest-rate dollar is in demand, thus weakening the Japanese yen. The yen's depreciation also stands out in comparison to the currencies of other developed and emerging economies, and one can assume that this suggests structural weakness in the Japanese economy.

    As a resource poor country, Japan depends on other countries for energy and many foodstuffs. Following a surge in import costs such as on crude oil, Japan saw a record trade deficit in the first half of fiscal 2022.

    While exports are also growing, Japan hasn't been able to cover the deficit from imports as "made-in-Japan" goods are far scarcer now than in the past. Japanese companies and financial actors are selling the yen to get dollars to pay for imports.

    The Japanese government and business world have heretofore welcomed a weak yen, because it helps expand Japanese exports and inflate overseas profits converted into yen. The "Abenomics" economy policy mix led by the administration of former Prime Minister Shinzo Abe was intended to drive the yen's fall by executing a monetary easing policy.

    And Abenomics did help gain profit mainly among Japan's multinationals. However, even with a weak yen, Japanese firms seeking to expand have continued to relocate production outside the country, and the "hollowing-out" of domestic industries is not getting any better. Japanese firms also haven't been able to offer sufficient pay rises.

    The weak yen has caused import costs to soar, causing the inflation rate in Japan to reach a 31-year high. This is squeezing business and household finances.

    The Japanese government has a gasoline price subsidy in place to combat soaring commodity prices, and plans to lay out electricity and gas price containment measures. With such ad hoc tricks, however, the sinking of the Japanese economy will not stop. It's crucial for Japan to fundamentally rebuild its economic structure.

    Business owners should, for example, put more effort into decarbonization and digitization projects to get ahead of the global current, with the government supporting these initiatives. What is needed now is a strategy to strengthen Japan's economic power.

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