The era of 360 yen to the dollar will return⁉ Is 150 yen a passing point?
With the yen’s continued depreciation and warnings of foreign exchange intervention smouldering, some believe that 150 yen to the dollar is only a ‘passing point’ and that the yen will continue to weaken over the long term (our forecast of 360 yen to the dollar within five years).
Behind this is a reality that is ‘unique to Japan’.
There are only three currencies weaker than Japan!
The yen’s purchasing power has fallen significantly due to the ongoing depreciation of the yen. The Japanese yen has become ‘weak’. Purchasing power has reverted to 53 years ago and wage levels have remained unchanged for more than 30 years. Japan has already been overtaken by developing countries and will become an ‘unattractive country’ if this situation continues. The government is taking various actions, but can the social structure of Japan really be changed?
Japan’s purchasing power has declined significantly
Since the beginning of the year, three world currencies have depreciated more than the Japanese yen: the Russian (ruble), Argentine (peso) and Turkish (lira). In Asia, they have become the weakest currencies.
In addition to the interest rate gap between Japan and the US, the price hike in crude oil and natural gas, the shrinking workforce due to the falling birthrate and ageing population, and the weakening of the yen have all contributed to an increasing trade deficit (up to a record ¥20 trillion) and further selling off of the yen, a vicious circle that cannot be broken out of.
Japanese yen weakens → weak currency is sold → yen weakens → economic strength weakens → deflation progresses →.
The Japanese economy, weakened by deflation, was labelled ‘weak yen’ in the assessment of the Japanese economy, which in turn accelerated the weakness of the yen against a wide range of currencies, resulting in a devaluation of the real effective exchange rate.
As a result, the yen has weakened so much that its current level is the same as it was during the past fixed exchange rate era (360 yen to the dollar). This is the lowest ‘purchasing power’ in 53 years.
The purchasing power of the yen has reverted to the 1970s
The real effective exchange rate is an indicator that measures the overall strength of the Japanese yen. This indicator measures the yen’s strength by taking into account prices and the relationship between multiple currencies.
In November 2023, the real effective exchange rate was 71.39, the lowest level since 1970.
This means that the purchasing power of the yen is only the same as it was when the exchange rate was fixed at 360 yen to the dollar.
If wages do not rise and purchasing power does not recover, the yen’s depreciation will not be halted and may actually fall to the level of the fixed exchange rate of the 1960s, when it was ¥150 to the dollar, or even ¥360 to the dollar.
Depositing money in a bank is investing in Japanese yen
Many people in Japan think that they can rest easy if they keep their money in a bank, but what about from a foreign perspective?
In such a situation, who would really convert all their wealth into Japanese yen?
From now on, I think it is important to broaden our perspective on world affairs and look at the Japanese yen from the outside.
By Admin|2024-05-02|News Release,|