The yen’s purchasing power has fallen and the real exchange rate has hit a 50-year low
As the nominal exchange rate of The Japanese yen depreciates and prices remain low, the real effective exchange rate of the Japanese yen has hit a new low in the past 50 years, which means that the external purchasing power of the Japanese yen declines. The currency with the highest real exchange rate in January was The Chinese RMB.According to the Japanese media, the Bank for International Settlements (BIS) announced on Monday that the yen’s real effective exchange rate (2010 =100) reached 67.55 in January 2022, the lowest since BIS began collecting data in 1994.If the bank of Japan (Bank of Japan, BOJ) according to the BIS data back to the value of the 50 years (since February 1972, 67.49) record low.The real effective exchange rate is used to show the aggregate value of a country’s currency. The lower the value, the lower the value of the currency.The depreciation of the real effective exchange rate is due to the depreciation of the nominal exchange rate of the Yen and the low price of commodities, which means that the external purchasing power of the Yen decreases. In the context of the high price of international commodities such as crude oil, the increase of import price will also increase the burden of Japanese households.The yen’s nominal exchange rate fell below 116 against the dollar in early January, its lowest level in about five years.The BIS calculates real exchange rates for about 60 countries/regions based on data such as nominal exchange rates, trade volumes and price changes. A lower value means a currency has less purchasing power among these currencies, meaning it is more difficult to buy goods from overseas.The BIS points out that the yen’s highest real effective exchange rate was 150.85 in April 1995, when the nominal exchange rate first rose to around 70 yen per dollar. Since then, however, prices and wages in Japan have barely risen compared with those abroad, and the Japanese government/Bank of Japan’s policy of encouraging yen depreciation,As a result, the real exchange rate of the yen has continued to slide and is now less than half its peak level.According to the report, only a few currencies, such as the Turkish lira and Brazilian dollar, suffered more severe declines in real exchange rates than the Japanese yen. The highest real exchange rate in January was 131.01 for the Chinese RMB, 119.75 for the US dollar and 105.15 for the British pound.Japan’s trade deficit in January 2022 rose 5.7 times (569.7%) from the same month last year (327.163 billion yen) to 2.191.1 trillion yen, according to statistics released by the Ministry of Finance on Monday, despite continued export growth, due to surging crude oil prices and surging imports.It recorded a deficit for the sixth consecutive month, the second largest monthly deficit in eight years (2.795 trillion yen since January 2014).