Yen’s fall hurts Japan’s economy

• Japan’s economy unexpectedly shrank for the first time in a year.
• GDP decreased 1.2% annually.
• A weak yen caused many to cut back on spending.

Japan’s economy unexpectedly shrank for the first time in a year due to rising costs.

Three months to September, GDP decreased 1.2% annually.

Fears of a global slowdown and a weak yen caused many to cut back on spending.

The world’s third-largest economy is expected to avoid recession this year.

Darren Tay, Japan economist at Capital Economics, believes the economy will expand by 2022.

Virus dangers and growing inflation will hamper the Japanese economy’s recovery, he noted.

Japan’s currency plummeted against the US dollar this year as the global economy slowed and inflation rose.

Last month, the yen touched 32-year lows versus the dollar, making imported goods more expensive for Japanese individuals and businesses.

The yen’s decline in recent months has been driven by interest rate differences.

Since March, the Fed has rapidly boosted its main interest rate to combat growing costs.

Bank of Japan’s key rate is below zero.

Investors prefer currencies with higher interest rates.

Less demand for lower-rate currencies causes them to lose value.

EY’s Nobuko Kobayashi noted that the currency’s drop is positive for Japanese exporters.

“For exporters, a weaker yen is favorable as it cuts down costs. For businesses that produce and locally serve global markets, the profit converted into yen is inflated,” she said.

Ms. Kobayashi remarked that a weak yen may help Japan attract foreign investment.

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