Blog Post

Yen at war

Talks about currency wars have resurged since the recently elected Japanese Prime Minister Shinzo Abe declared war on deflation, using the heavy armament of fiscal stimulus and monetary easing. His moves have given rise to much controversy; see eg the recent Bruegel blog review and a video interview with Professor Mitsuhiro Fukao from Keio University. […]

By: Date: January 28, 2013 Topic: Global Economics & Governance

Talks about currency wars have resurged since the recently elected Japanese Prime Minister Shinzo Abe declared war on deflation, using the heavy armament of fiscal stimulus and monetary easing. His moves have given rise to much controversy; see eg the recent Bruegel blog review and a video interview with Professor Mitsuhiro Fukao from Keio University.

As a result, the yen has depreciated sharply recent weeks. But how do the current yen exchange rates look like in a historical perspective?

Figure 1 shows that even after a sharp recent depreciation of the yen, its rates against some major currencies are not weak compared to the past two decades. The 25 January 2013 rate of 91 against the US dollar is still well below the 111 average rate of 1990-2012. Against the euro, the 122 rate of 25 January 2013 is also below the 135 average rate of the past 23 years. Even the complaints of Korean companies are not well justified: certainly, the yen depreciated against the won by about 22 percent since September 2013, yet the current rate is still more appreciated than any time before September 2008, except the first two months of 1998. (Yet those who engaged in Japanese yen carry trade are certainly happy.)

Figure 1: Japanese yen exchange rates, January 1990 – 25 January 2013

Note: monthly averages up to December 2012; the 25 January 2013 rates for January 2013. A lower value indicates a stronger yen.

Certainly, the real effective exchange rate (REER), which is calculated against several trading partners and controls for the differences in inflation, matters more than the nominal rate. Figure 2 shows consumer prices index based REER developments from 1980 to January 2013. While the most recent value of the Japanese REER is about 10 percent below the average of the past 33 years, the same is true for the US dollar, the Korean won and the Chinese renminbi. Only the euro is almost at the historical average, and its rate may even increase further, since the European Central Bank resists calls for further interest rate cuts and quantitative easing. A stronger euro may weaken the anyway fragile European economic recovery, but even more importantly, it would make the adjustment of external imbalances of Southern euro area members extremely difficult, if not impossible, as I argued in a paper last summer.

Figure 2: CPI-based real effective exchange rates, January 1980 – January 2013 (December 2007=100)

Note: the source for January 1995-January 2013 is the updated dataset of Darvas (2012). We projected the not-yet available consumer price index data by assuming that the 12-month inflation has remained unchanged since the latest available observation. The monthly average exchange rate data for January 2013 is calculated using the actual daily data for 2-23 January 2013 and by assuming that the nominal exchange rates remain unchanged at their 23 January 2013 values till the end of the month. In the pre-1995 period, the OECD’s REER for the US, Euro area, Japan and Korea, and the IMF’s REER for China are chained backward.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Japan’s inflation problem and monetary policy options

Bruegel senior fellow Zsolt Darvas welcomes Sayuri Shirai, professor at Keio University, visiting scholar at the Asian Development Bank Institute and former Member of the Policy Board of the Bank of Japan (BOJ), for a discussion of the Japanese monetary policy outlook. 

By: The Sound of Economics Topic: Global Economics & Governance Date: October 26, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: The new balance of Asia-EU-US trade relations

Amid the Asia-Europe Economic Forum on the fringes of the 12th ASEM Summit, Bruegel senior fellow hosts a conversation on developing global trade relations, with guests Moonsung Kang, professor as Korea University, and Michael G. Plummer, director at SAIS Europe – Johns Hopkins University, for an episode of the Bruegel Backstage series on ‘The Sound of Economics’.

By: The Sound of Economics Topic: Global Economics & Governance Date: October 17, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Implications of the new EU-Japan trade deal

Bruegel senior fellow André Sapir welcomes Tamotsu Nakamura, dean of Kobe University’s Graduate School of Economics, and Maria Åsenius, head of cabinet to European trade commissioner Cecilia Malmström, for a discussion of the EU-Japan economic partnership in the context of heightening global trade tensions.

By: The Sound of Economics Topic: Global Economics & Governance Date: October 4, 2018
Read article Download PDF

External Publication

European Parliament

The EU - Japan Economic Partnership Agreement

This paper was requested by the European Parliament's Committee on International Trade (INTA) and analyses the EU-Japan Economic Partnership Agreement (EUJEPA).

By: André Sapir, Sonali Chowdhry and Alessio Terzi Topic: European Parliament, Global Economics & Governance, Testimonies Date: October 3, 2018
Read about event More on this topic

Past Event

Past Event

International trade and the EU-Japan Economic Partnership Agreement

This event; jointly organised by Bruegel and the Graduate School of Economics, Kobe University, will discuss the EU-Japan trade deal and asses its impact.

Speakers: Maria Åsenius, Sonali Chowdhry, Gabriel Felbermayr, Hiroo Inoue, Sébastien Jean, Yoichi Matsubayashi, Tamotsu Nakamura, Masahiro Nakata, Luis Portero, André Sapir, Alessio Terzi, Agata Wierzbowska and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 3, 2018
Read article More on this topic More by this author

Opinion

Japan must boost R&D to keep rising Chinese rivals at bay

As China shifts into a more advanced industrialised economy, Japan has slowly but surely lost to some of its comparative advantages to its rival. One possible solution to help the government keep pace would be to concentrate research and development efforts on a few key sectors where Japanese players still hold a large competitive lead.

By: Alicia García-Herrero Topic: Innovation & Competition Policy Date: September 20, 2018
Read article More on this topic More by this author

Blog Post

Abenomics, five years in

Five years have passed since Japan’s Prime Minister Shinzō Abe was elected in 2012 and started “Abenomics”, a macroeconomic package based upon the “three arrows” of monetary easing, fiscal stimulus and structural reforms. After five years, has Abenomics worked? We review recent opinions.

By: Silvia Merler Topic: Global Economics & Governance Date: January 8, 2018
Read article More on this topic More by this author

Blog Post

How the EU has become an immigration area

Natural change of EU28 population (the balance of live births and deaths) has fallen from high positive values in the 1960s to essentially zero recently, while the previous close-to-zero net immigration has turned positive and, since the early 1990s, become a more important source of population growth than natural increase

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 6, 2017
Read about event More on this topic

Past Event

Past Event

Europe and Japan: Monetary policies in the age of uncertainty

The 5th Bruegel - Graduate School of Economics, Kobe University conference will focus on monetary policy.

Speakers: Kosuke Aoki, Ulrich Bindseil, Grégory Claeys, Zsolt Darvas, Ester Faia, Lex Hoogduin, Martin Hellwig, Miles Kimball, Eric Lonergan, Benoît Mojon, Tamotsu Nakamura, Marianne Nessén, Athanasios Orphanides, Wataru Takahashi, Tokiko Shimizu and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 2, 2017
Read article More on this topic More by this author

Opinion

Europe should lead the way with multilateralism

Despite the unique partnership with the USA, Europe needs to reflect on its place in an unstable world. Especially if the US Administration moves towards protectionism, the EU will need to build and deepen relationships with other partners.

By: Guntram B. Wolff Topic: Global Economics & Governance Date: March 16, 2017
Read about event More on this topic

Past Event

Past Event

Intellectual Property and Competition Policy in Europe and Japan

Intellectual property (IP) is a cornerstone for incentivising innovation initiatives. It defines a framework within which firms and individuals can produce creations of intellect.

Speakers: Peter Alexiadis, Reiko Aoki, Michael Koenig, Kai-Uwe Kühn and Georgios Petropoulos Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 14, 2017
Read article Download PDF More on this topic

Policy Contribution

How not to create zombie banks: lessons for Italy from Japan

How can Italian banks address the issue of non-perfoming loans? What lessons can they learn from Japan?

By: Christopher Gandrud and Mark Hallerberg Topic: Finance & Financial Regulation Date: March 8, 2017
Load more posts