Re:Bank of Japan, in a Surprise, Adopts Negative Interest Rate
by neximo4 on Tuesday February 02, 2016 @08:07AM
(#11019179)
> Deflation does not mean that exchange rate of Japanese yen increases relative to other currencies.
There is evidence that shows over the long run a currency's exchange rate will be favoured against those with a positive inflation rate differential.
Re:Bank of Japan, in a Surprise, Adopts Negative Interest Rate
by nabla9 on Tuesday February 02, 2016 @08:20AM
(#11019237)
Of course it does, but the effect is not linear and its mostly correlation caused by underlying mechanisms.
Too much inflation is usually sign of problems in the economy. Too low inflation is also sign of problems. The optimum rate of inflation is usually somewhere 1-4%.
Strong currency is not good thing in itself. It hurts exports and makes foreign goods cheaper.
Japan has free floating currency with inflation-targeting framework.
Japan's import-export balance adjusts more or less automatically because the currency floats relative to other currencies. Japan has very little foreign debt, so the huge national debt is not creating inflationary pressure trough exchange rates.
Japanese yen suffering from long period of low inflation and deflation (lost decade) is caused by the lack of structural reforms and demographics. Japan is getting old fast and people are saving for their retirement. Domestic consumption is not taking off
To put things into perspective:
Household consumption makes 61% of the Japanese GDP
Exports of goods and services is just 16.2%