Yen’s Power Weakens to Uncharted Territory

Tokyo, April 27 (Jiji Press)–The yen’s real effective exchange rate, an indicator of Japan’s international competitiveness, has plunged to historically low levels, bringing about soaring import prices in the country. The Bank for International Settlements’ REER index for the yen came to 66.33 against the 2020 base of 100 in March, the lowest since comparable data became available in 1970. The real effective rate, or the inflation-adjusted weighted average of the yen’s exchange rates relative to a basket of 64 currencies, reflects the Japanese currency’s actual purchasing power and goes up when the country’s consumer prices rise faster than other countries’. The rate has kept declining since it peaked at 194.2 in April 1995, in tandem with the Japanese economy and prices. Falling interest rates also intensified yen selling against other major currencies such as the dollar and euro. The BIS index for the yen is mired in territory far below the 1970 levels around 75 “possibly due highly to (Japan’s) weakening national strength amid the declining birthrate and population aging,” Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co., said. In the six months after Sanae Takaichi took the helm of the Japanese government as the first female prime minister in Japan’s history in October last year, the index dropped some 6 pct from 70.81. This can be partly blamed for escalated yen selling amid growing concerns over her advocacy of proactive public finances leading to further deterioration of the country’s fiscal health, analysts said. The decline in the yen’s real effective rate has put heavier financial burdens on households and domestic demand-oriented businesses through price hikes for imports. However, it has made Japanese goods and services cheaper for foreign tourists and given export firms a competitive edge, they added. END [Copyright The Jiji Press, Ltd.]