Editor’s observe: Zhou Jianjun is an affiliate analysis fellow on the CEEC Economic and Trade Cooperation Institute of Ningbo University. The article displays the creator’s opinions and never essentially the views of CGTN. It has been translated from Chinese and edited for brevity and readability.
Recently, persistent yen weak point has raised rising considerations over Japan’s financial outlook. Goldman Sachs has raised its forecast for the US dollar in opposition to the yen over the following 12 months from 155 yen to 165 yen, making it one of the bearish yen projections, as per a Bloomberg survey.
An digital board shows the present trade price of the Japanese yen in opposition to the US dollar in Minato Ward, Tokyo, Japan, July 16, 2026. /VCG
Japan’s financial system is now going through a rising disconnect between conventional financial logic and a brand new structural actuality. The long-held perception {that a} weaker yen robotically advantages exports is not essentially legitimate.
Over the previous month, the dollar-yen trade price has remained above the 160 stage, hovering close to historic highs. Traditional commerce idea means that foreign money depreciation can cut back the foreign-currency value of a rustic’s exports, stimulate abroad demand and enhance commerce balances.
Japan has repeatedly relied on yen depreciation as a coverage software to spice up exports and assist financial progress. However, this mechanism depends upon two key circumstances: Firstly, exported items should be primarily produced domestically; secondly, home manufacturing capability should reply rapidly to exchange-rate modifications. Nowadays, nevertheless, Japan not absolutely meets both situation. Despite the yen having depreciated considerably in contrast with 5 years in the past, Japan has continued to document commerce deficits for 5 consecutive years. The weaker yen has failed to enhance the nation’s commerce stability and has as a substitute contributed to persistent exterior deficits.
A Nissan Juke within the automobile inspection space on the Nissan Motor Co. manufacturing plant in Sunderland, UK, December 16, 2025. /VCG
Japan’s large-scale relocation of producing capability abroad has rendered the normal transmission mechanism by way of which foreign money depreciation boosts exports ineffective. According to knowledge from the Japan Bank for International Cooperation, Japan’s abroad manufacturing ratio for manufacturing reached 36.2% in 2024 and is predicted to rise to 37.2% by 2027. Meanwhile, the abroad gross sales ratio has reached a document excessive of 40%. Compared with the general common, Japan’s main industries, together with vehicle manufacturing and electronics, have even larger abroad manufacturing ratios. For instance, Toyota’s abroad manufacturing has lengthy accounted for greater than half of its complete output, whereas Nissan’s abroad manufacturing ratio reached 80.8% in 2025.
When Japanese automobiles are produced at abroad factories and offered in international markets, each manufacturing prices and promoting costs are denominated in native currencies. As a consequence, fluctuations within the yen trade price have restricted direct impression on these operations. Therefore, the advantages of yen depreciation are actually primarily focused on exports produced in home factories. This means the normal pathway that foreign money depreciation drives decrease export costs, stronger abroad demand and export progress has grow to be more and more ineffective. A weaker yen alone is unlikely to considerably increase Japan’s exports underneath the nation’s present industrial construction.
As a resource-importing financial system, Japan is especially susceptible to rocketing import prices brought on by yen depreciation, placing larger operational stress on home enterprises. A weaker yen will increase the price of imports, fueling imported inflation and weighing on financial progress. Keiji Kanda, an economist on the Daiwa Institute of Research, famous {that a} 10% depreciation of the yen in opposition to the US dollar over the previous 12 months has decreased Japan’s actual GDP progress by roughly 0.14 share factors on a internet foundation. Over the previous 12 months, Japan’s import costs have climbed from 151.5 factors in June 2025 to 196.6 factors in June 2026.
Rising prices of imported uncooked supplies have straight squeezed company revenue margins and intensified operational pressures on companies. In June 2026, the variety of company bankruptcies in Japan rose to 1,021 from 780 in May, hitting a 10-year excessive. Instead of producing advantages for home enterprises in Japan, yen depreciation has created extra burdens by pushing up import prices for companies.
Customers in entrance of the vegetable part at an area meals retailer in Ama, Aichi Prefecture, Japan, April 24, 2026. /VCG
Shrinking family buying energy has fueled a “depreciation-induced downturn” in Japan. According to statistics launched by Japan’s Ministry of Health, Labour and Welfare, Japan’s actual wages per capita adjusted for inflation declined by 1.3% in 2025 from the earlier 12 months, marking the fourth consecutive annual decline. When the buying energy of wage earners continues to deteriorate, home consumption, a key driver of financial progress, inevitably loses momentum. According to Japan’s family expenditure knowledge, family spending declined by 0.4% 12 months on 12 months in May 2026, marking the sixth consecutive month of contraction since December 2025. Yen depreciation has transmitted foreign money pressures into larger dwelling prices by way of the import-price channel, weakening households’ buying energy and willingness to devour.
If extended yen weak point continues and Japan struggles to interrupt free from the development, the financial system may fall right into a vicious cycle of a “depreciation-induced downturn”: A weaker yen drives up costs, rising costs undermine consumption, weaker consumption weighs on financial progress, and slowing progress additional will increase Japan’s reliance on accommodative financial insurance policies, placing extra downward stress on the yen.
The fading advantages of yen depreciation replicate a deeper transformation in Japan’s industrial competitiveness and provide broader classes for economies world wide. Goldman Sachs’ downward evaluation of the yen and more and more bearish market expectations are, in essence, a mirrored image of considerations over Japan’s structural financial weaknesses. Ageing demographics, the relocation of producing capability abroad, and inadequate competitiveness in rising industries have all grow to be extra pronounced underneath the stress of yen depreciation. When the muse of an financial system’s industrial competitiveness weakens, foreign money depreciation alone can’t reverse declining export momentum. Instead, it could lead to a extra extreme financial recession.
Japan’s expertise with yen depreciation demonstrates an vital lesson for international locations worldwide: Exchange-rate insurance policies can’t substitute for industrial insurance policies, and short-term value competitiveness can’t overcome long-term structural challenges. Only by strengthening home manufacturing capabilities and reinforcing the innovation capability underpinning manufacturing can a rustic preserve a long-lasting aggressive edge in international competitors.
(Cover picture by way of VCG)
Source: CGTN