Takeshi Minami, a director researcher at the Agriculture, Forestry and Central Gold Research Institute, predicted that “until the U.S. Federal Open Market Committee (FOMC) meeting in late September, the yen may further depreciate to 145 yen per dollar.” He also said, “As Japan The raw materials and other raw materials are dependent on imports, and the price of food will probably rise gradually.”
The “Nihon Keizai Shimbun” article pointed out that indicators such as the currency options market show that the yen will fall further, and market stakeholders are also aware that the yen exchange rate may exceed 1 US dollar to 140 yen.
The surge in resource prices caused by the Ukraine crisis was also seen as a factor in the yen’s depreciation. Due to Japan’s reliance on resource imports, the trade deficit has expanded, and importing companies have sold yen and bought dollars, which are believed to have contributed to the depreciation of the yen. These sell-offs of the yen due to real demand overlap with those of speculators selling the yen. After the exchange rate broke through 1 USD to 130 yen at the end of April, the trend of selling the yen and buying the dollar continued.
Previously, the depreciation of the yen was believed to have a positive impact on the Japanese economy. In Japan, which has advantages in the manufacturing industry, the depreciation of the yen will promote the competitiveness of export products, and non-manufacturing industries such as the service industry will also benefit from increased consumption by tourists visiting Japan.
However, the market is currently worried that the depreciation of the yen will pull down Japan’s future GDP value. The think tank Daiwa Research Institute predicts that if the yen depreciates by 10% compared to January to March 2022 (1 US dollar to 116.2 yen), the real GDP in 2022 will be pulled down by 0.05%. This is because the negative impact of rising import prices is more pronounced than the effect of increasing export value due to the depreciation of the yen. The estimated 10% depreciation level is about 127 yen to 128 yen, but the current yen exchange rate has been significantly lower than the above level.
The current difficulties facing the Japanese economy are also weakening the “positive” effect of the yen’s depreciation.
From the perspective of the impact on equipment investment, due to the future uncertainty caused by rising resource prices and supply constraints, it is difficult for enterprises to actively invest in equipment. At the same time, it will take a long time to adjust the investment plan. In addition, many manufacturing companies have established supply chains near global consumption areas, and even if the yen depreciates, it is difficult to move their bases back to Japan.