The sinking currency in Japan has had wide-ranging effects on various aspects of life in the country. The yen hit its weakest level against the US dollar since 1990, impacting businesses like Japan Fraise, a fruit importer specializing in strawberries. The falling yen has made imported fruits more expensive, leading to price increases for customers and challenges for businesses trying to absorb some of the cost themselves. Inflation has also been pushed up, reaching a 41-year high of 3.1% last year.
The decline of the yen can be attributed to the Bank of Japan maintaining low interest rates while other central banks, like the US Federal Reserve, have raised borrowing costs to combat inflation. This has led to carry trades where investors borrow money in yen to invest in higher-yielding assets in other currencies, weakening the Japanese currency. The yen briefly weakened to 160 to the US dollar for the first time since 1990, prompting the BOJ to intervene in the market. Despite efforts to stabilize the currency, the yen has lost 10% of its value against the dollar this year.
Although the weakening yen has benefited Japan’s export competitiveness, corporate profits, and economic growth, it has also caused challenges domestically. Japanese consumers have felt the impact of rising prices of imported goods and the increased cost of foreign travel. The number of Japanese travelers abroad has dropped significantly, with many prioritizing domestic travel due to financial constraints. The downsides of a soft currency have been growing, affecting consumers who are accustomed to price stability and rising prices.
The weak yen has made Japan a more affordable destination for foreign tourists, particularly from China, who are expected to visit in large numbers during holidays. Luxury companies like LVMH have seen increased sales in Japan, driven by Chinese tourists shopping in the country. The stock market in Japan has also seen gains and the country has become more attractive to investors like Warren Buffett. However, the cost of travel for Japanese citizens has increased, making foreign travel less accessible for many.
The impact of the weakening yen is evident in everyday situations, such as at Tokyo’s Haneda Airport where travelers like Sato Hitomi are facing high costs for overseas vacations. Hitomi, who recently retired after 46 years of working, is embarking on a family trip to Hawaii that may be their first and last overseas vacation. Rising prices and the reduced purchasing power of the yen have made foreign travel less feasible for many Japanese families, emphasizing the challenges faced by consumers in the current economic environment.
