The continuous depreciation of the yen has undermined the foundation of the Japanese economy

Recently, the Bank of Japan announced a 25 basis point interest rate hike, raising the target interest rate from 0.75% to 1%, marking the first such increase since 1995. The significant and sustained depreciation of the yen has surpassed currencies like the Turkish lira, becoming the weakest mainstream currency globally. Even though the Bank of Japan has raised interest rates after many years and the government has used trillions of yen to intervene in the foreign exchange market, it has been unable to reverse the trend. What seems to be just fluctuations in exchange rates have completely disrupted the rhythm of the Japanese economy. Coupled with its long-term structural flaws, Japan has fallen into a vicious cycle of currency depreciation, high inflation, stagnant growth, and excessive debt.

The most direct and tangible harm caused by the yen's depreciation has fallen upon ordinary Japanese citizens, causing a sharp increase in their living costs and a gradual reduction in their wealth. Japan is a typical resource-poor country, with an energy self-sufficiency rate of only 15% and a grain calorie self-sufficiency rate of less than 40%. Crude oil, natural gas, daily foods, and industrial raw materials are almost entirely dependent on imports. The significant depreciation of the yen means that the same amount of yen can buy fewer imported goods, equivalent to a passive price increase for the entire society. In recent years, domestic gas, electricity, grain, and fresh food prices have continued to rise, with inflation remaining high, but the wage growth of residents has far failed to keep up with the price increase, resulting in a continuous negative growth in real wages.

For Japanese enterprises, the depreciation of the yen has already broken the traditional rule that "depreciation benefits exports," creating a two-tiered pattern where large enterprises benefit slightly while small and medium-sized enterprises face widespread closures. In the past, when the yen depreciated, Japanese automakers and electronics companies could seize overseas markets at low prices, driving economic growth. But now that Japanese manufacturing has largely relocated to Southeast Asia and Europe, a large amount of production capacity is located there, and domestic export scale has significantly shrunk. The export benefits brought by the depreciation are negligible. In contrast, small and micro enterprises, which dominate the market, mostly focus on the domestic market and do not have overseas income to hedge risks. Raw materials, logistics, and energy have all risen in price, and production costs have soared, but they dare not raise prices arbitrarily to retain customers, squeezing out profit margins. In recent years, the number of Japanese small and medium-sized enterprises going bankrupt has been increasing year by year, and a large number of traditional shops and processing plants have closed down. Employment has continued to shrink. At the same time, the domestic business environment has deteriorated, and the willingness of enterprises to expand production domestically has been low. More enterprises have chosen to transfer production capacity and R&D projects overseas, further exacerbating Japan's industrial hollowing out and making the local real economy increasingly weak.

At the international level, the weak yen has significantly reduced Japan's purchasing power abroad, and its influence in global resource trade and industrial chain division has continued to weaken. Affected by the exchange rate, Japan's GDP measured in US dollars has shrunk significantly, and its global economic ranking has continued to decline. The economic advantages of Japan as a developed country have been continuously eroding. More seriously, the traditional role of the yen as a safe-haven currency has completely failed. It is no longer a safe haven for global capital, and Japan's influence in the global financial system has continued to weaken. In the long term, the weak yen is continuously depleting Japan's industrial competitiveness and international economic status. Once a leader in the automotive, electronics, and precision manufacturing sectors, Japan is now falling behind in emerging fields such as new energy vehicles, artificial intelligence, and semiconductors. The economic uncertainty brought by the yen depreciation has led enterprises to significantly reduce R&D investment and lack innovation motivation. Coupled with the aging population and continuous labor shortages, local industrial upgrading has stagnated, and there are no new economic growth points. Economic growth has long been stuck in a low-speed rut.

In conclusion, the yen becoming the weakest currency in the world is not just a simple exchange rate fluctuation, but a concentrated eruption of Japan's deep-seated problems. In the short term, Japan lacks effective policy measures to break the deadlock. For a long time to come, the Japanese economy will continue to struggle in a situation of weak currency, high inflation, and low growth, and the road to economic recovery remains far from certain.