Recently, in foreign exchange markets, the United States dollar has risen to above 100 yen per dollar. In fact, last week it briefly rose to 102 – a number not seen in five years. Since April 4, the yen has lost 10% of its value. This rapid shift has been a real change since last summer, when the dollar was trading close to 75 yen. Some traders even believe that the dollar may rise to 105 in the next week!
The credit for this change goes to Japan’s Prime Minister Shinzo Abe, who has pushed the Bank of Japan to stimulate the nation's economy. In recent years, Japan’s currency became one of the most valued and trusted currencies in the world, but that trust became a curse when Japanese products became too expensive overseas. The highly sought-after yen made exports difficult and hurt manufacturers like Toyota and Sony.
When Prime Minister Abe was elected in December of 2012, he announced an aggressive effort to turn around the economy. He fired the head of the Bank of Japan and appointed a new leader who immediately began to buy bonds and attempt to cause inflation. While Americans typically think of inflation as a bad thing, in Japan the yen’s deflation has been the source of great difficulty. Even in Japan, many still remember how inflation nearly ruined Japan just after the end of World War II. Legally, the Bank of Japan is not supposed to directly intervene in the economy, but Abe promised that it would do so without holding back.
This news is the first piece of truly good news for Japans economy in almost 15 years. The Nikkei (the Japanese stock exchange) has rallied and companies like Bridgestone, who manufactures tires, are up 67% this year. Sony has posted a profit for the first time since 2008, when the yen hit its record high.
The question now is whether Japan will be able to keep the up the momentum. Prime Minister Abe has already announced several efforts to make big changes in the Japanese economy, such as splitting electrical utilities’ generation and transmission businesses and opening the residential electricity market to competition. He has even begun a push to bring more women into the workplace and keep them there. Only 15 percent of companies in Japan have any female executives, and those women only make up 1.6 percent of executive roles. Abe has pledged to expand day care and push for more opportunities for women in the workforce.