Weak Yen indicates decline of Japanese Economy
Table of contents
what is the depreciation of the Yen?
What is the "lost decade?
What does the Big Mac index represent?
Why doesn't Japan's average income rise ?
What should we do to discontinue Negative cycle?
Chapter 1
What is the depreciation of the Yen?
As a term implies, Yen depreciation is decrease in the value of yen relative to foreign
Therefore, The demand for the yen is to decrease and the amount of in circulation in the world. when the value of their currency fall cause rising import price and rising trip price. conversely, export price will rise and manufacturing industry profits will rise.
until now, japan has been a manufacturing powerhouse, and the weak yen has allowed the country to maintain current account surpluses and the growth of it's manufacturing industry. A typical phrase that describe this historical background is 「JAPAN AS NO 1」.Japan at that time was presence in many field such as technology, finance, real estate.
it's leading company is Toshiba, Toyota, Sony, Canon.
the larger profits of these companies which contribute significantly to japan's economic growth, the greater the japan's national strength will be.
In other words, the weak yen had a positive effect on japan as a whole by making these companies more profitable.
conversely, a stronger yen would decrease the profits of these
the media reported this situation as a "strong yen recession.
however, we are currently experiencing a weak yen recession, the opposite of a strong yen recession.
I think three main factor of "weak yen recession.
That is japan's industrial structure, interest rate difference with other countries, average national income.
chapter 2
What is the "lost decade?
I remarked about weak yen recession in chapter 1.
japan's industrial structure has a profound effect on current situation.
japan's economy is stagnating since bubble burst.
The word that express it is "lost decade".
After the burst of the bubble economy,
japan's company was busy with default processing and personnel reductions, and could not afford to invest in growth industries such as the IT field.
In the meantime, japan's company has been overtaken by American GAFA and others.
This can be clearly seen by looking at the semiconductor production process.
semiconductor manufacturing is mainly divided into design and manufacturing.
Intel and Qualcomm in the united states are mainly designing. and the actual manufacturing is in China and Taiwan, which are said to be "factories in the world". originally, japan should have played the role of design.
However, the growth division, which is a deficit business, has opted to sell it to another country at an early stage.
The decline in the global status of Japanese companies can be seen in the market capitalization rankings from the 1980s to the 2020s.
In the 1980s, many Japanese occupied top 10, but now, top 10 are dominated by American and Chinese companies.
chapter 3
what does the Big mac index represent?
Japan has been implementing a low interest rate policy until now under the Abe administration. In general, low interest rate policy cause inflation. because, low interest rate make it easier for businesses to borrow money and the bank of japan supplies more money to the market. as a result, the value of money goes down and price go up.
Japanese company tend to use their profits for retaining earnings, and this has not triggered a good economic cycle. Also, Japanese people have fallen into deflationary mindset, making it difficult for businesses to raise prices. this situation can be seen clearly below picture.
The above picture represent big mac price each counties for 2000s. the below picture represent price for 2022.
Japan in 2000s Big mac price was about 294yen and hight price in the world. but now, japan's that price is about 390yen. this inflation rate is low level in the world. while other country's big mac price has more than doubled.
Also, current other country inflation rate is high level, so these country are implementing austerity policy to rise interest rate little by little.
This interest rate difference between japan and other countries cause yen depreciation pressure.
chapter 4
why doesn't japan's average income rise?
Japan in 2000's average income was about 4.46million and this figure was high level in the world. but now, Japanese average income is about 4.40million.
For 20 years,Japanese average income is almost flat. other countries average income has doubled.
In other words, it can be said that the economy is in virtuous cycle, because other countries case is rise in price accompanied by rise in average income.
Then why japan's average income isn't rise?
that is Chinese industrialization is deeply involved.
China's economy has rapidly growth for this 20 years. especially manufacturing field is No 1 in the world. actually we usually use "made in china" products. it is no exaggeration to say that the current world economy is supported by .Chinese manufacturing growth is push down Japanese manufacturing company's profits. also, japan's main industry is manufacturing. therefore, decline Japanese economy and decrease average income.
we should avoid "price competition" and shift industrial structure.
chapter 5
What should we do to discontinue Negative cycle?
So far, I have described the current situation in Japan.
From this chapter, I will remark personal opinion about the way japan should go. Japan was overtaken by Chinese industrialization for this 20 years.
As a result, Japanese product had lost superiority.
The basic industrial development is transition labor intensive industry to knowledge intensive industry. specifically, shift manufacturing industry to Advanced medical industry and Hardware business to Cloud business.
I think japan have great potential.
The specific fields is tourism industry, global expansion of Animation industry, Luxury EV industry, Next-generation semiconductor industry and export of smart city construction know-how.
This article is written with various resources such as the bank of Japan, The British weekly newspaper, JP Morgan and Newspicks as well as personal opinions. Also, I'm writing this article in english to improve writing skills. and I hope that readers of this article will be able to proofread incorrect sentences.
If a foreigner read this article please tell me how to compare it with a situation in your own country and what you think of how to growth Japanese economy.
