Japan's Declining Yen: A Threat to Economic Prosperity

Japan's terms of trade have worsened for nine consecutive quarters, with import prices rising significantly more than export prices. The depreciation of the yen, caused by diverging monetary policies, has contributed to this decline. The trading loss has impacted Japan's national income, hindering its recovery from the pandemic. Private consumption has been discouraged by rising inflation, while business investment remains low due to uncertainty. The government has implemented fiscal policies to counter price increases and intervened in the foreign exchange market to support the yen. Although the short-term situation has improved, concerns remain as the yen's depreciation and potential external shocks could affect the Japanese economy, which heavily relies on trade. Reforms to strengthen resilience are still needed.