Japan's Economy
The Weak Yen and Its Effects
Why the yen fell sharply against the dollar after 2021, who gained and lost, and how Japan responded.
The yen weakened sharply after 2021, falling to around 160 per dollar in 2024, the weakest in decades.
Why
- Interest rate gap: US rates rose steeply, while Japan’s stayed near zero, so investors moved money to the US.
- Carry trades: borrowing cheaply in yen to invest elsewhere.
- Energy imports costing more.
Winners
- Exporters like carmakers earned more in yen from overseas sales.
- Tourism boomed, with record foreign visitors attracted by cheap prices.
Losers
- Households faced higher prices for imported food and energy.
- Small firms relying on imports.
- Japanese travelling abroad.
Intervention
Japan’s Ministry of Finance intervened in currency markets in 2022 and 2024, selling dollars to buy yen and support the currency.
Tourism boom
Japan received a record number of visitors in 2024, over 36 million, with foreign tourist spending becoming a major source of income.
The cheap holiday
An Indian tourist finds that a Tokyo hotel costs far less in rupees than a few years earlier, thanks to the weak yen.
Thinking a weak currency only hurts a country
It helps exporters and tourism while raising import costs.
Key takeaways
- The yen fell to around 160 per dollar in 2024.
- Interest rate gaps and carry trades drove the fall.
- Exporters and tourism gained; households faced higher prices.
- Japan intervened to support the yen in 2022 and 2024.
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