Economy Yen purchasing power falls to 53-year low, about one-third of peak

[thomas]

The yen's overall strength against major currencies fell to a 53-year low in January, dropping to roughly one-third of its 1995 peak as Japan's long economic slump continued to weigh on its purchasing power. The currency's real effective exchange rate stood at 67.73 in January, the lowest since Japan adopted a floating exchange rate in 1973, according to data released Friday by the Bank for International Settlements. The index measures the yen against a basket of major currencies and adjusts for price differences. It indicates how much Japanese buyers can purchase abroad. When the index declines, purchasing power weakens.

The yen's real effective exchange rate peaked in April 1995 at 193.95 and has since fallen to roughly a third of that level. The yen has weakened against a wide range of currencies, including the U.S. dollar and euro, as well as the Chinese yuan and Thai baht. One major factor is the prolonged slump in the Japanese economy, known as the "lost decades," following the collapse of the bubble economy. Japan's potential growth rate, which was around 1% in 1995, was stuck in the low-0% range in the late 2010s, according to the Bank of Japan. The weak growth potential led to extremely low inflation and interest rates, resulting in a prolonged decline in the real effective exchange rate. With both prices and wages rising recently, the BOJ is working to normalize monetary policy. The bank has indicated plans to continue raising the policy interest rate above the current 0.75%.

Paywall alert:

Yen's purchasing power sinks to 53-year low, one-third of peak

Besides US dollar, the currency also falls against Chinese yuan and Thai baht

asia.nikkei.com

 

[johnnyG]

Personally, I feel the yen had its strongest purchasing power when it was in the ¥80-100 to the dollar range.