Low readings do not always mean the cause for pessimism. Moreover, in some cases it could be a deliberately set policy. If so, it is considered a success. This is exactly what is happening with Japan’s national currency. Summing up the results of the fiscal year, economy watchers noted a record tumble of the Japanese yen. Over the past year, Japan’s currency lost 25% of its value. The Japanese yen has been showing the weakest exchange movement against the U.S. dollar since 1979. In early 2013, the exchange rate was holding at ¥86 per $1; but at the year-end, the yen was 22% undervalued against the dollar and hit ¥104 per $1. Such a record slump did not happen by accident or as an aftermath of a crisis. It is a fruit of a meticulous policy of the government headed by new Prime Minister Shinzo Abe. The program of the economic reforms in Japan called Abenomics also involves the yen depreciation. Besides, the yen rate is influenced by the Fed’s decision to scale back the assets purchase program. Taking this into account, analysts expect that Japan will head the list. In other words, it is the Bank of Japan that is expected to take the lead in terms of expanding its already massive stimulus in 2014. Currently, the Central Bank is spending ¥7 trillion ($70 billion) on Japan’s bond purchase every month. In the meantime, a low national currency’s rate gives a big advantage to Japan’s export sales reinforcing their competitiveness and providing support to the domestic stock market. Although, this state-of-affairs is being kept under control, the government has already recorded some alarm signs as a trade balance deficit is starting to increase, mainly due to growing import costs of energy supplies. Apart from that, such a background rather suits the Prime Minister and proves that the implemented reforms are on the right track.
