Japan’s currency isn’t in free fall yet, but it might be getting there. The yen has been weakening since 2021, but in the last month the slide has

Is Japan having a currency crisis? - by Noah Smith

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2024-04-29 16:30:05

Japan’s currency isn’t in free fall yet, but it might be getting there. The yen has been weakening since 2021, but in the last month the slide has accelerated:

For most of the two decades that I’ve been going to Japan, you could mentally assume that one yen was about equal to one cent, or maybe a little bit less. Now, a yen is about 0.63 cents. That’s a big drop!

People in Japan are naturally very upset about this, and with good reason. Japan is one of the most import-dependent countries in the world, importing over 90% of its energy supply and over 60% of its food. A weaker yen is making Japanese people feel suddenly poorer, as power bills go up.

Now let’s remember that a “weaker” exchange rate isn’t always a bad thing. A cheaper currency makes a country’s exports more affordable, meaning it can sell more overseas. In fact, the U.S. dollar’s perennial “strength”, stemming from its status as the world’s top reserve currency, is one big reason U.S. manufacturing and exports have suffered over the years. And this is why 20 years ago, Japan used to intervene to keep the yen cheap.

In fact, Japan can hopefully use the weak yen as an opportunity to restore its position in the global supply chains for electronics and cars. The semiconductor fabs that TSMC is building in Kumamoto are a prime example; TSMC earns its revenues in New Taiwan dollars, so when the yen is cheap, TSMC can afford a lot more fab construction and Japanese fab worker salaries.