The Japanese Yen (JPY) has experienced a notable depreciation against both the US Dollar (USD) and the Euro (EUR) since the beginning of 2021. Analysts at Natixis elaborate on the positive aspects of a weakened Yen for Japan.
The Bank of Japan has little incentive to obtain an appreciation of the Yen
Japan’s decision to implement an expansionary monetary policy, in contrast to the restrictive approaches adopted by other OECD countries since 2022, has resulted in a noticeable depreciation of the Yen. Surprisingly, this depreciation has proven advantageous for Japan’s economy in various aspects:
The weakened Yen has played a role in steering inflation towards the targeted 2%, addressing concerns about deflationary pressures.
Furthermore, the devalued currency has acted as a stimulus for exports, heightening Japan’s competitive edge in the global market.
The substantial net external assets held by Japan, especially in Dollars and Euros, have seen increased capital gains due to the Yen’s depreciation.
In light of these positive outcomes associated with a weaker Yen, there appears to be little inclination for Japan to shift towards a significantly more restrictive monetary policy. Any adjustments in this regard are more likely to be symbolic, such as a modest increase in the Bank of Japan’s base rate.
