On the 3rd, Chinese media Global Times published an article titled, 'Why Has the Japanese Yen Fallen to Become the "Weakest Currency"?'

The article mentioned that researcher Robin Brooks of the U.S. think tank Brookings Institution recently pointed out that 'the Japanese yen has fallen below the Turkish lira to become the world's weakest currency,' which has caused a stir. According to data from the Bank for International Settlements (BIS), since the Bank of Japan transitioned to a floating exchange rate system in 1973, the real effective exchange rate of the Japanese yen has fallen to its lowest level ever, while the Turkish lira has risen since the beginning of the year, indicating that the two have reversed positions.

It then explained, 'The real effective exchange rate is an indicator that reflects the real purchasing power of a currency, considering trade volumes and inflation rate differences with various countries. The current state of the Japanese yen means that the same amount of money can purchase the smallest amount of imported goods such as oil, food, and semiconductors ever.' It added, 'The impact is affecting Japanese households, with prices of imported goods such as olive oil, coffee, chocolate, and beef continuing to rise in Tokyo supermarkets. Costs for studying and traveling abroad have also increased, leading to a widespread perception that real purchasing power is declining even if nominal incomes remain unchanged.'

The article pointed out that 'the weak yen poses challenges to the entire Japanese economy.' It stated, 'In the short term, it leads to an increase in the competitiveness of export companies, but in the long term, it accelerates import inflation, causing increased corporate costs and pressure on profits. If capital outflows proceed, it could also lead to a decline in confidence in yen-denominated assets, and there is concern that the Japanese economy could fall into a vicious cycle of "inability to raise interest rates → yen depreciation → worsening inflation."

Furthermore, it explained the current situation, stating, 'The Japanese government carried out currency interventions of unprecedented scale from late April to May to curb the yen's depreciation, but the effects were temporary, and the yen exchange rate once again fell back to near pre-intervention levels. Yen selling by speculators continues in the market, with the Japan-U.S. interest rate differential as the background. Investors are continuing carry trades, borrowing low-interest yen and investing in high-interest assets, which maintains downward pressure on the yen.'

It also mentioned, 'Japan's unique structural problems are also contributing to the yen's depreciation.' It stated, 'Japan has long suffered from a trade deficit, and there is a possibility of the deficit widening again due to rising energy prices. Against the backdrop of low domestic growth and low interest rates, funds from individual and institutional investors are flowing overseas, and industrial hollowing out due to the relocation of production bases abroad is also progressing.' It concluded, 'Much of the profits gained from overseas assets are reinvested locally and not repatriated to Japan, which also weakens the yen's supportive power.'

The article pointed out that 'there is a strong view that the yen's depreciation trend will continue unless the Bank of Japan significantly revises its monetary policy.' As an expert stated, 'Conducting currency intervention while continuing monetary easing is like pressing the accelerator and brake simultaneously. This only creates temporary market confusion and merely depletes valuable policy resources and foreign exchange reserves.' (Translation/Editing by Kitada)