The yen is rising yet Japan’s economy is slumping. Call it pandemic economics

Name: Japan’s new PM Yoshihide Suga inherits economic woes, Tokyo Olympics challenge
Uploaded: 2020-09-22T21:15:11.000Z
Duration: 2 min 11 s
Description: Japan’s new PM Yoshihide Suga inherits economic woes, Tokyo Olympics challenge

It might seem odd that an economy with as many problems as Japan’s should have a currency that enjoys safe-haven status. But, whenever international tensions rise or the global outlook darkens, the yen tends to appreciate

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An elderly couple walk along the Nakamise shopping street in Tokyo, during a coronavirus state of emergency on May 17. Photo: EPA-EFE

Neal Kimberley

Published: 5:15am, 23 Sep 2020Updated: 5:42am, 23 Sep 2020

Japan is the land of the rising yen even as its economy slumps. Amid the coronavirus pandemic, Japan’s economy shrank by an annualised 27.8 per cent in the second quarter of 2020. Long-serving prime minister Shinzo Abe has stood down for health reasons while, more generally, it would logically seem that Japan, with its ageing population, is more vulnerable to a virus that is more dangerous to the elderly.

One person in every 1,500 in Japan is now aged 100 or older, and 28 per cent of Japanese are 65 and above. Only 12 per cent are under 15.

That sounds like a recipe for a perfect economic storm that would normally be associated with local currency weakness. Yet, the foreign exchange market currently likes the Japanese yen.

Japan’s currency hit a seven-week high against the US dollar last week, while also making some gains versus other currencies such as the Australian dollar, the British pound and the euro. That’s clearly yen strength and not just US dollar weakness.

Japan’s new Prime Minister Yoshihide Suga has plenty to think about, and no doubt Japan’s influential export sector will be bending the ears of policymakers about the risk to the country’s competitive advantage that is represented by a rising yen.

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Japan’s new PM Yoshihide Suga inherits economic woes, Tokyo Olympics challenge

A certain degree of yen weakness arguably sprang from the economic policies of Suga’s predecessor but even if the new government embarks on another phase of so-called Abenomics, markets might take some convincing that further rises in the value of Japan’s currency are unwarranted.