Strawberry shortcake and foreign trips: Feeling the impact of Japan's yen reaching an all-time low.
The Japanese yen has been experiencing a significant decline, reaching its lowest point against the US dollar since 1990 earlier this week. This downward trend is driven by expectations that the US Federal Reserve will maintain higher interest rates to control American inflation.
For Hiroko Ishikawa, the struggles of her father's fruit import business, Japan Fraise, based in Tokyo, have intensified due to the weakening yen. Established in 1966, her company imports strawberries, including large ones from the United States, to meet high demand for Japanese-style shortcakes, a popular dessert for birthdays, holidays, and other celebrations. However, the falling yen has increased the cost of these imports.
Ishikawa supplies strawberries to around 400 clients, mainly bakeries and confectioneries nationwide. She has had to increase her wholesale prices for imported fruit by approximately 20% over the last two years to remain competitive. To offset the impact of currency fluctuations, she has absorbed some of the cost herself.
"It's been a really challenging couple of years," Ishikawa expressed to CNN. "We're not expecting any miracles for the next few months. We're just trying to manage."
Her clients have been trying to save money by using smaller or lower-grade berries. Some have even had to raise their prices, as the rising cost of other ingredients like flour, butter, milk, and eggs has further increased production costs. This price hike contributed to last year's inflation rate of 3.1%, a 41-year record, according to Nikkei.
The yen's downward spiral began in early 2021. This can be attributed to the Bank of Japan (BOJ) maintaining low interest rates while the US Federal Reserve and other central banks increased borrowing costs to tackle inflation. This disparity has encouraged carry trades, where investors borrow money in yen to invest in higher-yielding assets priced in different currencies, resulting in a weaker Japanese currency.
On Monday, the yen weakened to 160 against the US dollar for the first time in 1990 before briefly recovering as the BOJ reportedly bought back the Japanese currency.
"The effectiveness of such interventions is always subject to debate, as they often yield only temporary relief and may fail to address the underlying factors driving currency movements," Nigel Green, CEO of deVere Group, stated after the market turmoil.
Advantages of a Weakened Yen
In 2023, the yen lost 10% of its value against the greenback, making it the worst-performing currency among the Group of 10 (G10) industrialized nations. Even after ending its 17-year streak of negative interest rates with a hike in March, a significant gap between Japanese and US rates remains. This forecasts the continuation of the yen's weakness.
The weakened Japanese currency has brought several positive effects, including enhanced export competitiveness, boosted corporate profits, and economic growth. Japan has also become a more affordable destination for tourists.
"Tourism is the part of the economy where the yen’s cheapness is most visible, with Chinese tourists paying less for many things than they would at home," Kit Juckes, a strategist at Societe Generale, wrote in a research note.
A Big Mac costs 50% less in yen than in the next cheapest G10 currency, the New Zealand dollar. Japan also witnessed a strong growth in luxury sales, with the likes of LVMH recording a 32% increase in first-quarter sales, primarily due to Chinese tourists shopping there.
Disadvantages of a Weakened Yen
However, the depreciating yen has also caused much distress domestically. For instance, fewer Japanese tourists are traveling abroad as their money doesn't stretch as far as before.
The number of Japan's outbound tourists last year dropped to approximately 9.62 million, representing less than half of the 20.1 million travelers who left the country in pre-pandemic 2019.
Inevitably, the weak yen has caused rising prices for popular imported goods and travel abroad, making it more difficult for locals to afford such expenses.
"The downsides of a soft currency have been growing over the past couple of years," Sean Callow, an independent currency strategist, pointed out. "Japanese consumers accustomed to price stability will also be hurting from rising prices of their favorite imported goods and the surging cost of almost any travel outside Japan."
Conclusion
While a softened yen has brought advantages for Japan's economy, such as increased exports, tourism, and investments, it has also caused numerous challenges, including rising prices for imported items and decreased travel abroad.
She told CNN: “It’s been a really challenging couple of years. We all anticipate that it will continue to be this way for the next few months and we’re just trying to manage.”
At Tokyo's Haneda Airport, Hitomi Sato, age 66, is preparing herself for the expensive journey to Hawaii with her husband and two grown-up kids. This is their first – and potentially last – family holiday trip.
She shared with CNN on Friday, right before setting off, that she had just left her nursing job after working for 46 years. "I've been patient and delayed doing all the things I've wanted to do while also taking care of my parents," she said.
"My son is married and has a new baby, and my daughter will get married this fall. We're at a point where things are about to change a lot, so I wanted to travel. But this is probably the first and last overseas vacation for us," she continued.
— Contributions from CNN's Laura He and Chris Lau
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Source: edition.cnn.com
