Tetsushi Yamaguchi and Takaya Yamaguchi

TOKYO (Reuters). Masato Kanda, Japan’s top currency diplomat said that a weak yen had both advantages and disadvantages for Japan’s economy. This is due to Japan’s evolving export patterns and growing reliance on imported goods.

This comment highlights how the weakening yen is a political problem for Japan’s finance ministry. Traditionally, they have focused on keeping a strong currency away from harming its export sector.

Kanda commented on recent dollar-yen movements and said that it now seemed like the currency pair was “lacking direction” after having increased steadily in the past year.

“The yen fell last year due to widening U.S.–Japanese interest rates differentials,” he said. He said Monday that the dollar rose against all other currencies because of rising U.S. inflation expectations.

“That’s changed somewhat this year,” he stated. He explained that jitters due to a rebound in COVID-19 infections, and the differing pace of recovery in different countries had induced risk-off feelings.

Kanda is the vice-finance minister of Japan for international affairs. Kanda said that the increase in Japan’s export volume due to a weakening yen is less than what it was previously. This happens because manufacturers now target high-end products abroad rather than attempting to compete with lower prices.

He said that a weak yen still increases the overseas yen-denominated profit Japanese companies make.

A weak yen has the disadvantage of increasing the import costs of food and energy, adding that this increases household burdens. He acknowledged growing concern about possible side effects.

A weakening yen can have both positive and detrimental effects on the economy. A weaker yen can have both positive and negative effects on the economy. However, each entity’s pros/cons will be different.

ECONOMIC SECURITY

Kanda’s comment highlights a change in Tokyo’s perspective on currency. Instead of being focused on how a weaker yen helps an export-reliant country, one now pays more attention to potential downsides to yen falls.

Haruhiko Kuroda from the Bank of Japan stated that households could be more affected by a weak yen due to Japan’s growing dependence on imports of raw materials.

Kanda noted that Japan’s imports now make up 16% (compared to 9% in 20th century).

He stated that “we need to direct policy on the basis of the understanding, that exchange rate moves have changed the mechanism by which they affect the economy.”

Kanda said that it was the global energy, commodity inflation and not the weak yen that caused the increase in the household’s cost of living.

As a signal that China’s increasing presence in Japan is having an impact on Japan’s economy, the government will submit to parliament a bill that would allow it to screen foreign investments in infrastructure.

Kanda indicated that the finance ministry will intensify its efforts to address this issue, like increasing economic security staff.

Kanda declared that Japan should promote overseas investment and deal with any investment that may threaten its national security.

We will keep reviewing guidelines in order to be able to respond quickly to rapidly changing technological and strategic environments.