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Home > Media Reviews > News Review Last Updated: 11:00 06/15/2007
News Review #399: June 15, 2007

Weak Yen Fuels Japanese Surplus

Reviewed by Takahiro MIYAO

Weak Yen Fuels Japanese Surplus
Financial Times (6/14/2007)


In this Financial Times article, a concise explanation is given as to how a weak yen contributes to a rapid increase in Japan's current account surplus. One obvious way is to stimulate exports from Japan, especially to other Asian countries, whose currency is more or less pegged to the US dollar. Another, less obvious, way is to increase the value of returns on Japan's foreign investments in yen terms.

Even without the weakening currency, Japan might well be increasing its current account surplus for the following reasons: (1) increasing competitiveness in key exporting industries such as automobile and machineries, (2) increasing overseas investments from Japan for higher returns, and (3) rapid expansion of the global economy, especially in Asian countries. These favorable conditions help Japan defy the norm for a mature economy (like the US and the UK), which should increase receipt of returns on overseas investments while decreasing its exports and trade surplus, due to an increasing value of its currency. Obviously, a weak yen will strengthen Japan's tendency to move away from this norm.

It is clear that this "abnormal" situation has resulted mostly from Japan's low interest rate compared to interest rates overseas, but beyond that policy makers and economists differ in their opinions as to what to do to "normalize" the situation. A prevailing sentiment in Japan may be what the chief economist at JP Morgan in Tokyo says, quoted in this article: "I am not saying the current level of the yen is justified in terms of the relative macroeconomic fundamentals in Japan and the US. But it is the result of market forces all the same."

This review is adopted from the following blog (with its Japanese translation):

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