Strong Yen and Income
In early 1995, when the yen suddenly appreciated, the business community talked about "hollowing out" and the like, as if something very bad had happened. Later that year, when the yen then depreciated, reports were made as if the economy had been saved.
I have a big question mark over this way of thinking.
When the yen was 1 yen to the dollar, my salary was $80 and my meager 5000 million yen savings was $100. Now, my salary is $12500 and my savings have dropped to $3800. I wasn't reprimanded or made any impulse purchases. The yen has depreciated, and my income and savings, measured in the dollar, the world's standard currency, have simply fallen by 9500%.
What's so great about taking a 30% pay cut?
A strong yen will not destroy Japan
Almost no country has ever fallen because its currency became too expensive. Rather, the process of a currency becoming more expensive is the process by which that country's weight in the world increases. Before World War II, the British pound plummeted against the dollar, but in the process, exports recorded strong results and the country's economic growth rate remained high. Meanwhile, the US economy fell into the difficulties of the Great Depression. However, history thereafter clearly shows us which country held hegemony. The country that experienced the Great Depression far surpassed the rapidly growing UK. A country's downfall occurs when its currency becomes cheaper.
There is much talk about the relationship between a strong or weak yen and a trade surplus or deficit, but this is a short-term phenomenon. In the long term, there is no relationship between a strong yen and a decrease in Japan's trade surplus. This is clear from looking at Japan's trade balance since the country switched to a floating exchange rate system in 1974, and theoretically, the exchange rate level does not affect the trade balance. The argument that a strong yen will decrease the trade surplus is based on a "wrong intuition."
So, what impact will a strong yen have on the Japanese economy?
First of all, a strong yen changes the industrial structure of countries that have trade relations with Japan. Japan is no exception to this. Therefore, industries that lose their comparative advantage due to a strong yen will be hollowed out. This is a serious problem for the industry itself, but when viewed from the perspective of the country as a whole, it is actually desirable, as it increases efficiency by cutting out industries in which the country has a comparative advantage and concentrating on those in which it does. (Of course, it is a major problem if, due to an artificial distortion, industries without a comparative advantage remain in the country while industries with a comparative advantage go abroad.)
As a result, the other country may become relatively wealthy. However, Japan will also become richer than it is now. It is inevitable that an attitude that does not rejoice in the happiness of others will be derided as an island mentality.
Countries invested in and countries investing
This discrepancy in perception seems to stem from the fact that Japanese people have not yet fully accepted the fact that Japan has, in fact, changed from a country that receives investment to a country that invests in.
For a long time after the war, Japan was a target for investment, but not an investor. Generally speaking, a growth economy fits this mold. In this type of economy, production is a good thing, and a decrease in production is a very bad thing. Since there are no assets, people have to live off the income they generate, so this is only natural.
However, once you become wealthy and have assets, this argument does not hold up. It is a similar situation to an individual who has no need to work if he or she has sufficient income coming from their assets. To elaborate a little more in the context of a strong yen, if the decline in assets and the profits that come from them due to a weaker yen exceeds the increase in productive income that results from the weaker yen, then a weak yen has to be called an abomination.
I'll be super happy if the dollar becomes 1 yen
So, I think a strong yen is something to be happy about, not something to be hated. In fact, if the yen were to rise to 1 yen per dollar, which is unlikely to happen, my meager 1 million yen would be spent like 100 million yen in the world, and there is nothing happier than that. I would probably live a life of leisure.
what about you?