The Power of the Yen: Exchange rate fluctuations and currency strategies of Japanese firms

Table of Contents

Can we overcome the "exchange rate" barrier?

The historically large depreciation of the Yen since 2022 is said to have reduced the Yen's real effective exchange rate to a level equivalent to that of the early 1970s.
How much power has the Yen really lost? Can it regain the glory of once being touted as the strongest trading nation? Can promoting Yen-invoiced trade be a prescription for Japanese firms facing significant exchange rate fluctuations? The author's original economic analysis based on the latest research on Japanese firm’s invoicing strategy and exchange risk management provides an easy-to-understand explanation of the true state of Japan and the Yen today.

It is often pointed out that the rapid depreciation of the Yen in 2022 has "diminished the power of the Yen”. The reason is that the Yen's real effective exchange rate has depreciated to almost the same level as it was 50 years ago (the early 1970s), but has the Yen's power really declined?　How should we measure the Yen's power in the first place?

Japan's trade balance has not improved despite the Yen's depreciation; in fact, in recent years, Japan has been running a trade deficit. Why is it?

Over the past 50 years, Japanese firms have responded to significant exchange rate fluctuations by aggressively expanding overseas and building production and sales networks, especially in Asia. What currency strategies have Japanese firms used to cope with exchange rate risk under this production and sales networks?

Japan's choice of invoice currency, which has been said to be mainly dollar-invoiced trade due to the sluggish growth in Yen-invoiced trade, is undergoing a major change in Asia. The data will reveal new changes in the expansion of transactions invoiced in local Asian currencies.

The author, who has been involved in interview and questionnaire survey projects with Japanese firms for the past 17 years, analyzes and explains the above issues on the basis of the results of research using an original database he has constructed.

Introduction: Facing the Japanese currency, the “Yen”
Chapter 1: “Bad” Yen depreciation and trade deficit
Chapter 2: Why Japan's trade balance has not improved
Chapter 3: Why Yen-invoiced trade is not increasing
Chapter 4: Have Japanese firms overcome the exchange rate barrier?
Chapter 5: International production networks and Japanese overseas subsidiaries' choice of invoice currency: Will Asian local currency-invoiced transactions expand?
Final Chapter: The power of the Yen and the challenges for currency strategies of Japanese firms