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Tuesday, 28th January 2014
In Business In Japan,

Yen hits economy sweet spot

The Japanese yen is currently in a sweet spot that has helped companies report bumper profits at the close of 2013, although any further adjustment to the currency could prompt anger from the US.

As indicated by Reuters, efforts made by the prime minister Shinzo Abe to inflate the currency and thus boost exports have helped various industries throughout the country.

Abe-nomics, as his policies were affectionately referred to when he swept to power last year amid promises to revive Japan's ailing economy, have helped the country claw back gains after five successive years of losses.

However, it's not all good news, and the weaker yen has caused import prices to rise sharply, most notably for fuel.

Indeed, analysts report that if the yen were to lose any more of its value and fall outside the current 'Goldilocks range' of 100-110 per dollar, the negative aspects could outweigh the positive ones.

Problems with weakening the currency further include angering the US and other trading powers, as Washington's Federal Reserve tightens its dollar liquidity spigot.

However, despite the warnings, there are murmurings that the Bank of Japan (BOJ) may well be looking to increase its own flood of money into the economy, in order to offset a sales tax increase in just over two months.

Executives said that this is unlikely to have a huge amount of impact, however.

BOJ economist Nobuyasu Atago commented: "I don’t think many people in Japan want a yen decline to around 120 or 130 to the dollar. Many companies have already moved production overseas and may also become hesitant to boost exports for political considerations."

Whether the yen's drop has fully run its course remains to be seen, and more will undoubtedly be revealed over the coming months.

Written by Graham McPherson

Related news stories:
Canon posts rise in net profits (30th January 2012)
Japanese yen drops to lowest level since 2008 against US dollar (8th April 2013)
Shipbuilders switch from yen orders (17th December 2010)
Japan bank intervention 'weakens yen' (15th September 2010)