Sources report that the three months leading up to the end of September saw a 1.2% annualized decline in the gross domestic product (GDP) of Japan. Due to concerns about a worldwide downturn and the higher cost of imports induced by the weak yen, individuals and companies have reportedly cut back on spending.

Economists presume that the third-largest economy in the world is anticipated to switch back into recovery by the end of this year without going into recession.

Besides, even Japanese industries will prosper from an increase in inbound travel and a positive trade balance. However, virus threats and escalating inflation are likely to constrain the scope of the recovery.

Interestingly, Japan has suffered as its currency has depreciated in value relative to the US dollar, along with a sluggish international economy and worldwide inflation that is on the rise.

As a result of the yens recent 32-year lows against the dollar, Japanese individuals and businesses now pay more for imported products like food and oil. The disparity between interest rates in Japan and the US has been a large determinant in the yens precipitous downturn.

In an effort to combat the skyrocketing cost of living, the US Federal Reserve has vigorously hiked its key interest rate since March. However, the Bank of Japan has continued to maintain its key rate below zero.

It is worth mentioning that when the interest rates are stronger for any currency, it typically becomes more enticing for investors. As a result, there is a drop in demand for currencies from nations with lower interest rates.

Credible analysts, however, emphasized that the currencys depreciation is excellent news for Japanese businesses that export their goods. A weaker yen is undoubtedly advantageous for exporters since it drives down prices. The profit transferred into yen for those that produce domestically and supply to the markets outside is exaggerated due to the weaker yen.

In terms of the future, the plummeting value of the yen may potentially benefit Japans economy by luring foreign capital.

Source credit:

https://www.bbc.com/news/business-63631875