Weekly Preview: In-Depth: What Does the Rapid Depreciation of the Yen Mean for Japan and Surrounding Economies? (AI Translation)

【周刊提前读】深度：日元急速贬值 对日本及周边经济体意味着什么？

[para. 1] Zhao Nan, using a pseudonym, exchanged Chinese yuan for Japanese yen before the May Day holiday, noticing a favorable rate of nearly 22 yen per yuan, an increase of over 10% since the beginning of the year. [para. 2] By May 30, 2024, the exchange rate had risen to 21.7 yen per yuan, marking a 15% increase since early 2023 and a 46% rise from the low point in March 2020.

[para. 3] Japan, benefiting from the yen devaluation, saw a surge in tourism. Statistics indicated that Japan was the leading travel destination for Chinese customers during the May Day holiday. [para. 4] Market speculation suggested Japan's Ministry of Finance intervened to maintain the exchange rate at 151 yen to the dollar, though by May 30, it had depreciated back to around 157.5 yen.

[para. 5] The weaker yen had mixed impacts, boosting manufacturing exports and tourism. CEO Yoshiharu Hoshino of Hoshino Resorts noted unprecedented demand, and tourism spending surged by 73.3% year-on-year from January to March 2024. Despite this, Japan's first-quarter GDP declined by 0.5%, driven by a 0.7% drop in private consumption and 0.8% in capital expenditure, largely due to higher import costs impacting real wages and corporate investments.

[para. 6] Japan also faced challenges from "overtourism," particularly in popular tourist spots like Kamakura.

[para. 7] The depreciation affected Japan's global economic standing, with the IMF predicting India's nominal GDP would overtake Japan's by 2025, largely due to the weak yen.

[para. 8] The yen's depreciation initially benefited Japanese stocks, but by May, market volatility led to a decline in stocks, causing international investors to shift investments back to markets like Hong Kong.

[para. 9] The primary drivers behind the yen's decline were revised Federal Reserve rate cut expectations and the Bank of Japan’s dovish stance, making the yen a popular candidate for short selling.

[para. 10] Analysts had differing views on the Bank of Japan’s policy, with some suggesting focusing on domestic issues and leaving exchange rate adjustments to the Ministry of Finance.

[para. 11] Despite challenges, Japan saw a record employment rate for university graduates in 2024 at 98.1%.

[para. 12] The nation’s slow but ongoing structural reforms showed some signs of improving corporate profit margins and investments, with analysts becoming optimistic about the economy.

[para. 13] However, maintaining growth in an aging society remains a long-term challenge, suggesting continued depreciation of the yen.

[para. 14] Global currencies, including the Chinese yuan, faced pressure against the strong U.S. dollar, with the yen depreciating the most.

[para. 15] The Bank of Japan’s yield curve control and ultra-low interest rates contributed significantly to this trend.

[para. 16] Historically, the yen’s depreciation had been tempered by measures like "Shunto" wage negotiations, which recently resulted in a 5% wage increase, indicating a potential return to positive inflation and wage growth.

[para. 17] In late March, the Bank of Japan ended its negative interest rates and raised the policy rate but maintained an accommodative stance, which led to yen depreciation accelerating post-April 25 CPI data.

[para. 18] Much of Japan’s investment income remains overseas, and despite inbound tourism revenue, these investments contribute significantly to Japan’s current account surplus.

[para. 19-20] Analysis of market strategies indicated interest rate differentials were key factors that have been driving yen depreciation, with retail investors increasingly shifting financial assets from domestic deposits to invest in higher-yield overseas assets.

[para. 21] Analysts projected the yen would continue facing depreciation pressure unless significant changes in U.S. and Japanese monetary policies occur.[para. 22] A substantial part of Japanese investment now focuses on global stocks, facilitated by tax-free investment schemes like NISA.

[para. 23] Despite the weakening yen boosting exports, Japan faced pressure from lower profitability in manufacturing due to competition from Chinese firms and slow domestic consumption recovery.

[para. 24] Experts forecast that Federal Reserve policies will significantly influence the yen, anticipating potential appreciation by the end of 2025 if U.S. rate cuts materialize alongside expected rate hikes by the Bank of Japan.

[para. 25-26] Finally, the rapid depreciation of the yen has highlighted both opportunities and risks in Japan’s economy, with structural reforms and external pressures shaping its future trajectory.