Japan News
Will the Sinking Yen Sink Japan’s Economy?
Some argue that Japan is already on the road to poverty
In 1979, Harvard professor Ezra F. Vogel published a book titled Japan As Number One: Lessons for America.
A blurb by the Harvard University Press describes Vogel’s book thusly:
Japan as Number One analyzes the island nation’s development into the world’s most effective industrial power, not only in terms of economic productivity but also in its ability to govern efficiently, to educate its citizens, to control crime, to alleviate energy shortages, and to lessen pollution.
Vogel had every reason to expect great things of Japan at the time, but as we all know, things did not pan out for the island nation. In 1990, Japan’s asset bubble burst, and today Japan is the number three economy in the world and may be headed down even further.
One reason for Japan’s economic problems is its shrinking, aging population, which I wrote about recently.
Another major problem that is compounding the challenges of Japan’s shrinking population is the rapidly falling value of the yen.
Japan boasts few natural resources, so it heavily depends on imported goods. The weakening yen makes vital exports, which are paid for in dollars, more expensive.
In 2020, the exchange rate for the yen averaged 106 to the dollar. These days (April 2022) it is just shy of 130, which means the yen is lower than it has been in 20 years. Some are predicting it may go even lower.
According to the popular weekly magazine Shukan Gendai, Japan’s actual standard of living may be retrograding to that of the 1970s when such factors as the current cost of living are taken into consideration.
What is causing the yen to crash?
Some analysts point to the rising interest rates in the U.S. that are being implemented to fight rampant inflation, while interest rates in Japan remain close to zero.
Then there is the global geopolitical situation.
The COVID pandemic and war in Ukraine have resulted in rising energy, food, and raw material prices in Japan. Japan’s trade numbers, which at one time were racking up surpluses quarter after quarter, have been in the red for eight straight months.
Based on these criteria, Japan’s economic future appears to be dire indeed. However, reality has a habit of intervening in a way that renders economic predictions risible in hindsight.
Since I live in Japan, I pray that the predictions being made today turn out to be as far off the mark as those made by Vogel in 1979.
