Re:Japanese yen weakens to 160 against the USD since 1990
by maxglute on Monday April 29, 2024 @02:28AM
(#40195121)
>very damaging for a country
Depends on if it offsets their exports, which has increased last few years due to weak yen despite switching to "premium" energy pricing. Might also make a lot of their ASEAN/foreign infra tenders more competitive. I think there's gains for JP with weak yen, but can't happen faster than businesses can adjust.
#1 - Being the largest consumer economy. The economy of many countries depends on exporting stuff to the US. Now imagine the US prints a lot of money so its currency becomes weaker, relative to yours. This is a real problem because it means Americans aren't able to afford as much of your country's stuff. And if there are other countries whose currency has not strengthened as much (relative to the dollar), then their stuff becomes even more desirable, relative to yours. But there's actually a simple and happy solution - print money. Devaluing your own currency not only fixes this problem by 'importing' US inflation, but it also gives you lots of money to spend as well. The only problem is ever-mounting debt, but hey - if modern economics is about anything, it's about kicking the can to the next generation!
#2 - Being the global reserve currency. Until extremely recently, if China and Russia were going to go trade some goods between each other, they'd have settled the balance in USD! And nearly all oil was sold in USD. As the USD weakens, this obligates these countries to start increasing their reserves of it to continue ensuring the same level of real liquidity. But this also has the side effect of taking more USD out of general circulation which drives the price of the USD up, which also simultaneously makes your own reserves worth even more!
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It's also for these sort of reasons that, for instance, China is accused of being a currency manipulator for weakening their currency. We kind of intuit "strong = good" but in international economics, that's definitely not the case. It depends on the exact composition of your economy, and your role in global trade. China thrives because of a weak currency. But for Japan this is not the case. They are, amongst other things, the world's largest single importer of both natural gas and food. So their currency weakening is likely to be very damaging for a country that's already been suffering economically for decades, and is only getting worse due to an increasing demographic collapse.