Japan’s Yen has hit its lowest level against the dollar since the first week of April on fears that the country’s trade deficit might be expanding at a consistently higher rate than expected. Japan’s cheapening of the Yen in order to fuel export growth appears to have hit a snag, and there appear to be fewer and fewer options left to the country’s government as it tries to lever the country out of a twenty-year slump.
Japan’s economy was the most celebrated in the world during the 1970s and 1980s, but the Asian tiger has failed to navigate worsening demographics, low inflation and many other economic headwinds in the last two decades. The switch of the country from a net exporter to a net importer is a clear sign of an end to what the economy once meant to the world.
Yen sheds value on trade deficit
Japan showed a record trade deficit of ¥1.45 trillion, or around $14 billion, in March according to figures released by the country’s Department of Finance on Monday morning. The Yen responded to that change quickly, falling to ¥102.57/USD, the weakest level the currency has traded at since April 7, when it stood at more than ¥103/USD.
Japan’s trade deficit expanded to a record 13.75 trillion yen for the full year 2013. Apart from some out-of-trend periods, Japan has been a net exporter since the 1980s. the country was known for its flooding of the world market with all sorts of manufactured good from electronics to cars. Since 2011, however, the country has been sinking further and further into a trade deficit.
The Yen traded at its weakest level since 2009 at the start of 2014. A US dollar was selling for more than 105 yen when the New Year began. The country’s economic troubles are clearly damaging the value of its currency, though that was the intended effect of some of the policies put in place by current Prime Minister Shinzo Abe. A weaker Yen is supposed to create greater demand for Japanese exports and lower demand for imports, but that effect has not been recorded in the country’s most recent balance of trade numbers.
Japan slumps in face of Chinese dominance
Geopolitically, it is difficult for Japan to have picked a worse time to go through this kind of slump. China recently overtook the island nation as the world’s second biggest economy, and its balance of trade is almost unhealthily positive. The two countries have never been quite comfortable with each others’ presence, and it appears that the flip in the balance of trade, as well as the balance of power, may strain that relationship even further.
China’s currency does not float freely, so comparisons of its purchasing power to that of other currencies is of much less significance than similar comparisons made to the Yen. The currency has, however, seen a similar weakening against the dollar through 2014.
