Japan’s economy drops sharply after yen drop

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By Creative Media News

Japan’s GDP unexpectedly contracted for the first time in a year due to the impact of rising consumer prices on spending growth.

The gross domestic product (GDP) decreased by 1.2% on an annualized basis between July and September.

People reduced their spending out of concern for a global economic slowdown and because the weak yen made imports costlier.

However, economists anticipate that the third-largest economy in the world would avoid recession as it recovers this year.

Japan's economy drops sharply after yen drop
Japan's economy drops sharply after yen drop

By the end of 2022, “we anticipate a return to expansion,” said Darren Tay, Japan economist at Capital Economics, in a note to clients.

Japan’s economic system “A resurgence in inbound tourism and an improved trade balance will assist the economy. However, virus threats and growing prices would hinder the recovery’s growth “he noted.

Along with the slowing global economy and rising global inflation, Japan has struggled this year as its currency lost value against the US dollar.

Last month, the yen reached new 32-year lows against the dollar, which has increased the price of imported commodities for Japanese consumers and businesses, from oil to food.

In recent months, the decline of the yen has been driven by the disparity between Japanese and American interest rates.

The US Federal Reserve has aggressively increased its key interest rate since March to combat the growing cost of living.

The Bank of Japan has maintained its key rate below zero.

Typically, higher interest rates make a currency more appealing to investors.

Consequently, there is less demand for currencies from nations with lower interest rates, and the value of those currencies declines.

However, Nobuko Kobayashi of EY emphasized that the depreciation of the yen is excellent news for Japanese companies that export goods.

“For exporters, a weaker yen is unquestionably advantageous because it reduces prices. A cheaper yen inflates the profit in yen for those that create goods and serve foreign markets domestically. Therefore, the car and electronics industries profit from a weaker yen “She stated,

Ms. Kobayashi stated that the weak yen may also be beneficial for Japan’s economy since it may help to attract foreign investment.

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