Yen depreciation is good for Japan and its trading partners.

A weaker currency will make exports cheaper and imports more expensive – see mindmap below. As for Japan’s falling yen it is positive for its economy as a whole as it tries to get closer to its 2% inflation target.

The weak yen is also a chance to stimulate exports, even if Japan is no longer the currency-sensitive export machine it once was. Although it has meant more expensive oil and food imports, wages have hardly risen in response to higher prices. It used to be the case that the world was concerned with cheap Japanese exports but this means that it is exporting deflation which is what most developed countries want. The FT article on this topic is very good

Source: CIE A Level Revision – Susan Grant

For more on exchange rates view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.

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