Skip to main content

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions

pa3301c.jpg Paul Lachine
English

The Silent Run on the Yen

BOULDER – Nearly three decades ago, as a visiting professor at Konan University in Kobe, Japan, I learned to live in a cash society. Rather than open a checking account – and maintain the required minimum balance of $1,000 – I did what Japanese did: carry large amounts of yen and pay for everything in cash. At the time, Japanese were very frugal, and low interest rates compelled many to hold their savings in cash in safe-deposit boxes. Recently, however, Japanese spending habits have changed significantly.

The Japanese are adjusting to a depreciating currency, with the value of the yen having fallen 16% over the last year, to ¥100 to the dollar. This trend is set to continue, given that the Bank of Japan (BOJ) has unleashed the world’s most aggressive quantitative easing (QE) program, which entails pumping ¥7 trillion ($73 billion) into the economy monthly.

The BOJ hopes that the measures will lower interest rates and kick-start Japan’s long-stagnant economy. But, rather than helping the BOJ to reach its 2% inflation target in two years, QE is causing interest rates on government bonds to increase sharply, thereby pushing up commercial lending rates for individuals and corporations. As a result, Japan’s commercial banks, hypersensitive to the risk and uncertainty associated with interest-rate fluctuations, have not responded to QE by increasing their lending activity.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/jzHOIKE;
  1. solana114_FADEL SENNAAFP via Getty Images_libyaprotestflag Fadel Senna/AFP via Getty Images

    Relieving Libya’s Agony

    Javier Solana

    The credibility of all external actors in the Libyan conflict is now at stake. The main domestic players will lower their maximalist pretensions only when their foreign supporters do the same, ending hypocrisy once and for all and making a sincere effort to find room for consensus.

    3

Edit Newsletter Preferences