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

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 Japan comes 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”.

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.

  • Peter Schiff

    Yes, but to realize those gains, the Japanese will have to sell their foreign holdings and buy their yen back. This will push the value of the yen back up.

  • Romford Dave

    I think it was the flow of income Merryn was referring in achieving a gain, rather than any liquidation of overseas holdings.

    I regret not hoovering up foreign based income sources when the GBP was flying high pre 2008, now having to resort to investing in the land of the Randelas to offer some currency upside.

  • Andrew H

    It seems to me that the currency manipulation by various central banks is a modern day version of the “beggar thy neighbour” policy of the depresson in the 1930s.

    Rather than trade tariffs (one historical example the 1930 Smooth Hawley Tariff ) however, each central bank is instead attempting to trash their currency so as to gain advantage.

  • Andrew H

    N.B. typing error, should read “Smoot-Hawley”.

  • Kubitschek

    A decline in the exchange rate does not automatically translate into higher consumer prices.
    Many goods are priced according to ‘what the market will bear’
    e.g. the UK is now one of the cheapest places in Europe to buy a Mercedes and the parallel import trade from continental Europe has dried up.

  • Joshua Lee

    Agree that the JPY is weakening rapidly at the moment. Importing of fuel, gasoline will increase masively this is a bad thing in the poorer regions like where I live since there is a high number of elderly people. Also farmers are not making vast profits producing rice and/or mochi anymore, so food prices will increase too. Most of the food is imported in Japan so you can see its not good for all concerned!

MoneyWeek magazine

Latest issue:

Magazine cover
What a farce!

John Stepek on surviving the Greek fallout

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

From ADRs to Z scores – all the terms you wish you understood, but were too embarrassed to ask about.

Gervais Williams: if you want real dividend growth, buy small-cap stocks

Merryn Somerset Webb interviews small-cap stock expert Gervais Williams about how penny shares outperform blue chips 'again and again'.

Which investment platform is the right one for you?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from, with varying fees and charges. Find out which is best for you.

1 July 1972: Britain's first Gay Pride march is held 

On this day in 1972, the Gay Liberation Front organised Britain's first Gay Pride march from Trafalgar Square to Hyde Park.

Anatomy of a Grexit: how Greece would go about leaving the euro

Jonathan Loynes and Jennifer McKeown, economists at Capital Economics, look at the key issues and challenges of a Grexit, how it might be best managed, and set out a timetable for change.