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Japan's weak yen increasing import costs

in International Business

Japan's weak yen increasing import costs

JapanIn a bid to revive the country’s economy, Japanese policymakers are sticking to a weak yen in the short term to achieving their goal.

A weak yen has, as a result, boosted import costs, worsening the country’s trade deficit.

With yen falling nearly 25% against the US dollar, the deficit has reportedly risen to USD 10.5bn, as imports surged 19.6% from a year ago.

According to data released earlier this month, Japan’s growth rate slowed in the April to June quarter, from the previous quarter.

The world’s third-largest economy grew at an annualised rate of 2.6% during the period, down from the 4.1% annualised rate in the first three months of the year.

On the other hand, a weak yen has had the benefit of boosting Japanese exports, one of the key drivers of the country’s economic growth.

Data released by the Ministry of Finance showed that shipments from Japan rose 12.2% in July, from a year ago, the fastest pace of growth since December 2010.

Exports to China, Japan’s biggest trading partner, rose by 9.5% from a year earlier, compared with 4.7% growth in June.

Meanwhile shipments to the US jumped by 18.5% from a year ago, up from a 14.6% rise in the previous month.

Exports are expected to enhance further against the imports given the economic recovery in its key markets such as the US accompanied by weak yen and to bring down the deficit level.

“The deficit will likely shrink going forward as exports are expected to outpace imports due to the impact of the yen,” said Hideki Matsumura, as analyst with Japan Research Institute.

At the same time, a weak yen helps boost profits of exporters when they repatriate their foreign earnings back home.

The hope is that increased profits will result in more cash for these firms to spend on expanding their facilities and giving salary increases to employees.

Many analysts have said that such moves by Japan’s big exporters are likely to help revive domestic demand and boost economic growth.



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