How a yen collapse could be good for Japan’s consumers

We tend to think of currency collapses as being bad for a country’s consumers. But in Japan, the opposite might be true.

There is much talk at the moment about the possible coming collapse of the yen (if Mr Abe wins the Japanese elections on Sunday he has said he will work to debase the currency).

This might be a good thing for the stock market. But weak currencies are also generally a bad thing for consumers: when our currency weakens, the prices we pay for our imports go up in our currency, and we are automatically made poorer (this is exactly what has happened in the UK over the last few years).

But an interesting perspective on how this might play out in Japancomes from GK Research. Over the last few decades, the Japanese have invested large amounts of money outside the country both as savers and corporate investors. So much so, in fact, that "the flows of income from abroad are quite sizable".

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That means that a big fall in the yen (which would push up the purchasing power of foreign currency repatriated to Japan) would have not a negative but a positive wealth effect "thus boosting consumption."

Japan then is a country "where consumption could go up after a devaluation." That gives policy makers even more of an incentive to "gamble on debasement" than they already have.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.