Earlier this month, the Bank of Japan's low-key intervention in foreign exchange markets to prevent further decline of the value of the Japanese yen, reportedly to the tune of approximate ¥8 trillion, had little effect.
"The rate had briefly dropped to ¥160 to one U.S. dollar, a level not seen since April 1999," a business reporter at a national daily newspaper told Shukan Taishu (May 27).
However, economic analyst Takuro Morinaga pointed out that as the bank used foreign currency reserves it had obtained some years ago when the exchange rate was around ¥100 to the dollar, by this metric, it actually profited to the tune of ¥4 trillion yen.
"Those earnings would be enough to return ¥40,000 each to 100 million citizens," Morinaga continued. "But naturally things don't work that way. The bank holds some ¥300 trillion in foreign exchange reserves, and even if it were to pour in the entire amount to intervene on behalf of the yen, it would still realize profits of ¥100 trillion or more."
It stands to reason that since interest rates in Japan are low, investors are buying dollars for which they can earn greater interest, and this has been pushing up the value of the dollar worldwide. Yet even if Japan were to raise interest rates, it does not necessarily mean the yen would swing back to a more comfortable exchange rate. While allowing the yen to slump in value may aggravate inflation, the alternatives may be even worse.
"If the Bank of Japan raises interest rates, both fixed and variable rates for home mortgages will go up," Morinaga explains. "People having trouble making payments may be forced to default.
"That's the main factor keeping interest rates low. And if they do go up, bankruptcies by many small- and medium-size 'zombie businesses' that are barely hanging on may increase, leading to greater unemployment," he continued. "If that were to happen, we'd see a repeat of the 'Showa depression' of the 1920s, from which only major corporations would likely survive.
"So for the average citizen, it's going to mean grueling circumstances no matter what sort of measures are adopted."
One of the most immediate impacts has been on food prices. A survey of 1,195 foodstuff producers by the Teikoku Data Bank found that up to July of this year, the prices of 6,433 products would be raised by an average of 19% -- thereby raising the average family's annual outlays for food by about ¥78,000.
"The prolonged devaluation of the yen, coupled with such factors as high temperatures and drought brought on by climate instability has affected olive oil, sesame seeds, sea vegetables, cacao beans and others," the aforementioned business reporter was quoted as saying. "I suppose people's livelihoods will continue to suffer great distress."
Are there any short-term solutions to alleviate these trends? Yes, says Shukan Taishu. The first thing you need to do is trim unnecessary expenses to the bone. Take rents for so-called empty nesters (couples whose children who have grown and moved out). Over 30 years ago, Morinaga himself moved to a community located between the city and countryside. (The term for this is tokai-naka, a portmanteau made up of city and countryside.) The property includes a patch of land suitable for cultivation and an unspoiled forested hill behind it.
"We're able to cut costs by growing some of our own food, and farm work also serves as exercise," he said.
"There are all sorts of ways to trim the household budget," financial planner Harumi Maruyama tells the magazine. For example, land line telephones are expensive. She suggests cancelling the contract and between the fixed monthly charge and call fees, and you'll save between ¥20,000 and ¥30,000 per year right off the bat. Instead, she advises migrating to the budget plans offered by mobile providers, which can offer annual savings of up to ¥70,000 to single subscribers or ¥140,000 to married couples.
Another solution is to trim utility costs, where practicable, by replacing older power-hungry refrigerators and air conditioners with more energy-efficient newer units.
And there are plenty of other means to stretch the family budget. Ito Yokado supermarkets, for instance, discount 5% to seniors who shop on the 15th and 25th of each month. TOHO cinemas offer senior discounts of ¥700 on admission tickets. And seniors who have given up driving cars can obtain a driving record certificate that will make them eligible for discounts from taxi firms.
In a nutshell, the current situation calls for adoption of a carefully considered strategy of seikatsu boei (defending one's livelihood).
© Japan Today
9 Comments
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Almost Good
If rates go up the Japanese Government would pay way more on its own debt. That is by far the most important reason when you are using your Master Card to pay your Visa bill.
They have an approval rating in the low 20’s, they couldn’t care less if you have to hunt for your own food, but it’s even better if you buy a new AC and fridge before you start eating pigeons. Why not a new car too?
Redemption
At least Japan can devalue its currency and increase imports and tourism. When Greece had an economic crisis a few years ago it had to use austerity measures because it couldn’t devalue the euro and I recall unemployment went up to 40%.
dagon
It is the same thing with QE monetary easing by the BOJ and Abenomics.
The government hands out corporate welfare and gives vague promises of trickle down and "virtuous cycles".
It is just socialism for the rich.
https://www.businessinsider.com/universal-basic-income-guy-standing-quantitative-easing-2017-1
It could easily be used to raise overall living standards and reduce suffering and have a trickle up effect that would benefit many businesses.
NCIS Reruns
The low interest rates have contributed to yet another real estate "bubble," with rising costs for houses and condominiums (while millions of residences sit empty), and sleek new office buildings in central Tokyo keep springing up, which companies can't afford to rent. It always seems Japan's economy faces a no-way-out, damned-if-you-do, damned-if-you-don't situation.
kohakuebisu
Common sense tells us that we only know in hindsight whether currency interventions "had little effect". There was a lot of momentum against the yen when the government stepped in, and that has certainly cooled. Personally, I would call this phenomenon an "effect".
I suspect the US economy is headed for a downturn and Japan basically just has to sit it out and wait for interest rates to come down, which they will when you see US fundamentals. Its likely that the actual state of the US economy will not (be allowed to) become clear before the elections. That said, I expect the yen to only recover to 130ish and not to 115ish. My guess is that there will be a ratchet down.
GillislowTier
Decades of doing nothing with the solution being proposed to do nothing and keep waiting and seeing. Like they said “the definition of insanity is doing the same thing time and time again expecting a different result”
TaiwanIsNotChina
I guess at a certain point employees at zombie companies can go right into the elder care centers for work.
Chibakun
So they are trying to say that spending all that money proping up the yen wasn't that bad because they got the dollars when the rate was better...