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| Pro-Inflation Policies Show Signs of Helping the Japanese Economy | Pro-Inflation Policies Show Signs of Helping the Japanese Economy |
| (about 14 hours later) | |
| TOKYO — For almost two decades Japan’s economic fortunes have deteriorated, and little seemed to be done about it. | TOKYO — For almost two decades Japan’s economic fortunes have deteriorated, and little seemed to be done about it. |
| But in the last few months, the nation’s new prime minister, Shinzo Abe, has pushed policy makers and other officials to take bold steps to revive one of the world’s largest economies. Their handiwork was evident on Thursday when the Japanese yen hit 100 to the dollar for the first time in four years. | But in the last few months, the nation’s new prime minister, Shinzo Abe, has pushed policy makers and other officials to take bold steps to revive one of the world’s largest economies. Their handiwork was evident on Thursday when the Japanese yen hit 100 to the dollar for the first time in four years. |
| Normally a weakening exchange rate might be taken as a sign of decline. The yen has fallen nearly 14 percent against the dollar this year, and no currency has fallen more except the Venezuelan bolívar. But in Japan’s case, it is a sign that the policies put in place by Mr. Abe and Haruhiko Kuroda, chairman of the Bank of Japan, are starting to work. A weaker yen makes Japanese exports more competitive around the world. | Normally a weakening exchange rate might be taken as a sign of decline. The yen has fallen nearly 14 percent against the dollar this year, and no currency has fallen more except the Venezuelan bolívar. But in Japan’s case, it is a sign that the policies put in place by Mr. Abe and Haruhiko Kuroda, chairman of the Bank of Japan, are starting to work. A weaker yen makes Japanese exports more competitive around the world. |
| The most immediate impact of the weaker yen has been the boost in profits of the major exporters. This week, the Toyota Motor Corporation reported net income in the last 12 months jumped threefold, and Sony produced an annual profit for the first time in five years. Both companies forecast further profit increases largely because of the weaker yen. | The most immediate impact of the weaker yen has been the boost in profits of the major exporters. This week, the Toyota Motor Corporation reported net income in the last 12 months jumped threefold, and Sony produced an annual profit for the first time in five years. Both companies forecast further profit increases largely because of the weaker yen. |
| Perhaps more important, particularly for the citizens of Japan who have suffered from a long period of falling wages and prices, the yen’s move is expected to kindle inflation in the once moribund economy. | Perhaps more important, particularly for the citizens of Japan who have suffered from a long period of falling wages and prices, the yen’s move is expected to kindle inflation in the once moribund economy. |
| Bank of Japan has moved aggressively to reinvigorate the economy and fight deflation. Last month, the central bank announced a decisive break with its earlier policies. Instead of focusing on keeping overnight interest rates close to zero — which seemed to be having little effect in reviving growth — the central bank aimed to double the amount of money in circulation, seeking to produce annual inflation of about 2 percent. | Bank of Japan has moved aggressively to reinvigorate the economy and fight deflation. Last month, the central bank announced a decisive break with its earlier policies. Instead of focusing on keeping overnight interest rates close to zero — which seemed to be having little effect in reviving growth — the central bank aimed to double the amount of money in circulation, seeking to produce annual inflation of about 2 percent. |
| “This is new territory for the Bank of Japan, and the market is responding to that,” said Aroop Chatterjee, foreign exchange strategist at Barclays Capital in New York. “The Bank of Japan announced very strong monetary policy easing at the start of April.” | “This is new territory for the Bank of Japan, and the market is responding to that,” said Aroop Chatterjee, foreign exchange strategist at Barclays Capital in New York. “The Bank of Japan announced very strong monetary policy easing at the start of April.” |
| However, he said the more immediate trigger for the rate to cross Thursday’s threshold was signs of strength in the United States economy. | However, he said the more immediate trigger for the rate to cross Thursday’s threshold was signs of strength in the United States economy. |
| Akira Amari, Japan’s economic revitalization minister, quickly focused attention away from Japan’s role in weakening its own currency, in a bid to stave off accusations that Japan was manipulating the yen to bolster its exports. Rather, he said the dollar’s strength reflected investors’ hopes for an economic comeback in the United States. | |
| “It’s the dollar that’s in demand because economic recovery in America is gathering steam,” Mr. Amari said at a morning news conference. | “It’s the dollar that’s in demand because economic recovery in America is gathering steam,” Mr. Amari said at a morning news conference. |
| The efforts by the Bank of Japan to continue to flood the economy with liquidity is likely to keep downward pressure on the yen in the coming months. The central bank is following an asset purchase program to inflate the economy by aggressively buying longer-term bonds and doubling its government bond holdings in two years. | The efforts by the Bank of Japan to continue to flood the economy with liquidity is likely to keep downward pressure on the yen in the coming months. The central bank is following an asset purchase program to inflate the economy by aggressively buying longer-term bonds and doubling its government bond holdings in two years. |
| By mid-morning in Tokyo on Friday, the dollar was trading at 101.09 yen. | By mid-morning in Tokyo on Friday, the dollar was trading at 101.09 yen. |
| Japanese officials say the policy does not overtly pursue a lower yen rate, which could raise tensions with other exporting nations like the United States. But a weaker yen is a welcome development in some ways. | Japanese officials say the policy does not overtly pursue a lower yen rate, which could raise tensions with other exporting nations like the United States. But a weaker yen is a welcome development in some ways. |
| The depreciation of the yen may be a step in the right direction as the authorities try to stimulate some growth. However, Japan still faces many stiff challenges until it breaks out of its period of deflation. It has an aging and shrinking population and cumbersome regulations that make the economy inefficient. | The depreciation of the yen may be a step in the right direction as the authorities try to stimulate some growth. However, Japan still faces many stiff challenges until it breaks out of its period of deflation. It has an aging and shrinking population and cumbersome regulations that make the economy inefficient. |
| As Mr. Abe has tried to put a new focus on reviving the economy, he has also fought with the central bank’s former leaders over setting the 2 percent inflation goal. Mr. Abe’s pressure in the end led to the resignation of the bank’s previous governor, the moderate Masaaki Shirakawa. His departure led to the appointment of Mr. Kuroda, who shares Mr. Abe’s economic philosophy. | As Mr. Abe has tried to put a new focus on reviving the economy, he has also fought with the central bank’s former leaders over setting the 2 percent inflation goal. Mr. Abe’s pressure in the end led to the resignation of the bank’s previous governor, the moderate Masaaki Shirakawa. His departure led to the appointment of Mr. Kuroda, who shares Mr. Abe’s economic philosophy. |
| Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, said some in the market were speculating that the yen had been driven lower by non-Japanese investors. Those investors were anticipating that cash-rich Japanese investors were finally going to start selling their yen holdings to buy American and other foreign bonds in a hunt for higher yields outside Japan. | Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, said some in the market were speculating that the yen had been driven lower by non-Japanese investors. Those investors were anticipating that cash-rich Japanese investors were finally going to start selling their yen holdings to buy American and other foreign bonds in a hunt for higher yields outside Japan. |
| While the weaker yen is good for Japanese exporters, it makes imported products more expensive. That in turn can make selling foreign goods there harder. | While the weaker yen is good for Japanese exporters, it makes imported products more expensive. That in turn can make selling foreign goods there harder. |
| In a statement, the American Automotive Policy Council reacted strongly to Thursday’s milestone. “The depth of Japanese currency manipulation has reached a new low,” said Matt Blunt, the council’s president. He said the yen’s weakening will cost American exports and jobs. | In a statement, the American Automotive Policy Council reacted strongly to Thursday’s milestone. “The depth of Japanese currency manipulation has reached a new low,” said Matt Blunt, the council’s president. He said the yen’s weakening will cost American exports and jobs. |
| Still, there are concerns that too weak a currency could bring pain to a country dependent on imports for its energy and food. The Fukushima nuclear crisis, which has all but shut down Japan’s nuclear power program, has already led to surging oil and gas imports and rising energy prices. | Still, there are concerns that too weak a currency could bring pain to a country dependent on imports for its energy and food. The Fukushima nuclear crisis, which has all but shut down Japan’s nuclear power program, has already led to surging oil and gas imports and rising energy prices. |
| News shows have breathlessly covered recent price increases in items like tissue paper and canned tuna, perhaps a sign of the shock that prices should rise at all after more than a decade of deflation, rather than any immediate risk to household finances. | News shows have breathlessly covered recent price increases in items like tissue paper and canned tuna, perhaps a sign of the shock that prices should rise at all after more than a decade of deflation, rather than any immediate risk to household finances. |
| The key, economists say, is how much exporters and other corporations buoyed by the weaker yen will pass on their windfall to consumers, by hiring more workers and raising wages. Mr. Abe himself has been publicly pressuring corporate executives to raise pay, declaring on television last month that companies needed to “return favorable corporate earnings to their workers,” prompting a string of companies to declare wage increases or extra bonuses in recent months. | The key, economists say, is how much exporters and other corporations buoyed by the weaker yen will pass on their windfall to consumers, by hiring more workers and raising wages. Mr. Abe himself has been publicly pressuring corporate executives to raise pay, declaring on television last month that companies needed to “return favorable corporate earnings to their workers,” prompting a string of companies to declare wage increases or extra bonuses in recent months. |
| “If wages can rise, then the return to inflation is good news,” Nicholas Smith, Japan strategist at CLSA Asia-Pacific Markets, said in a recent research note. “If wages are going to be flat or down, all we are going to see is stagflation.” | “If wages can rise, then the return to inflation is good news,” Nicholas Smith, Japan strategist at CLSA Asia-Pacific Markets, said in a recent research note. “If wages are going to be flat or down, all we are going to see is stagflation.” |
Hiroko Tabuchi reported from Tokyo and Graham Bowley from New York. | Hiroko Tabuchi reported from Tokyo and Graham Bowley from New York. |
| This article has been revised to reflect the following correction: | |
| Correction: May 10, 2013 | |
A previous version of this article reversed the name of Japan’s economic revitalization minister. He is Akira Amari, not Amari Akira. |