The number of bankruptcies caused by rising prices in the first half of this year totaled 556, according to the latest data released Wednesday by Japan’s private research agency Imperial Database Company, that was the highest number since the survey began in 2018.
The President of Tokyo University of Economics, Hideyuki Ogawa, said that the continuous depreciation of the yen is not only difficult to boost the Japanese economy as in the past, but also further pushes up business operating costs, the negative impact on business operations and economic development has become increasingly prominent.
The Yen is at a near 40-year low of Y162 to the dollar. Ogawa points out that, as Japan’s manufacturing continues to move overseas, the boost to export growth and the trade balance from a weaker yen is no longer as significant as in the past, and Japan’s past export dividend is diminishing.
Hideki Ogawa, President of Tokyo University of Economics: the usual benefit of a weaker yen is that it will make it easier to export, because foreigners will buy more Japanese products, so exports will increase. In addition, when the yen depreciates to a certain extent, the value of exports (in yen terms) will also increase. However, as just mentioned, “The depreciation of the yen leads to an increase in exports,” provided that the products are produced in Japan, and then export them overseas. But now that Japanese manufacturers, Toyota and others, have moved overseas, currency movements in Japan have become less relevant to those exports. Even if the yen continues to fall, domestic exports will not necessarily increase. In that sense, I think the benefits of a weaker yen are largely gone.
Ogawa said the reason for the continued weakness of the yen was widely attributed to the interest rate differential between Japan and the US. Regarding the prospects of interest rate hikes that the market is concerned about, Hideki Ogawa believes that although the bank of Japan still has room to raise interest rates further, the pace and scope of interest rate hikes will be relatively limited due to the unstable foundation of the economic recovery, in the short term, it is difficult to significantly narrow the interest rate gap between Japan and the United States, and its role in supporting the yen exchange rate is also relatively limited.
Hideki Ogawa, President of Tokyo University of Economics: The Bank of Japan is raising interest rates because it is worried about inflation and overheating, so it is trying to respond by raising rates. But raising interest rates will not only curb growth, there are fears that the economy will cool too much, plunging it into a bad state. So any rise would be small, to about 0.5 or 1.0 per cent, rather than big. I don’t think there will be much of an impact on the exchange rate because the increase in interest rates will be so modest that the spread between Japan and the rest of the world won’t widen significantly, or the spread between Japan and the US won’t shrink significantly.