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Last updated at: (Beijing Time) Monday, January 14, 2002

Japanese Government Shouldn't Induce Devaluation of Yen: Analysis

With regard to reasons for the drastic devaluation of Japanese yen, it is, of course, related to the further deterioration of the Japanese economy, however, it is beyond doubt that Japanese government policy orientation also constitutes an important factor.


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With regard to reasons for the drastic devaluation of Japanese yen, it is, of course, related to the further deterioration of the Japanese economy, however, it is beyond doubt that Japanese government policy orientation also constitutes an important factor.

Currently, the motive of the Japanese government to induce the depreciation of Japanese yen is crystal clear, that is, it hopes to increase exports through devaluation. Certain big powers and international organizations have also expressed tolerance of the depreciation of Japanese yen due to the worsening Japanese economic situation. A new motive for the Japanese government to induce the devaluation of Japanese yen is that it hopes, by means of which, to increase the cost of imports, thereby achieving its aim of raising the level of Japanese domestic prices and lifting itself out of the trap of deflation. It is the opinion of those economists having close relations with the Japanese government that, in order to help the Japanese economy shake off the vicious cycle of deflation, the Japanese government seems to have been drained of many possible methods for financial policies and monetary policies, it has no other alternative but to again use the means of the depreciation of Japanese yen.

Superficially, the Japanese government has repeatedly claimed that the devaluation of Japanese yen is the result of the market force, and that the government can do nothing about the market choice. This formulation of the Japanese government is hardly convincible. Last year, the Japanese government repeatedly entered the market for interference, and its pressing down the value of yen is an undeniable fact.

Two weeks after of the "September 11" incident, the Bank of Japan dumped 3100 billion yen on the foreign exchange market in order to prop up the US dollar, and put the exchange rate of 115 yen against one US dollar back to the level of 120 yen against one US dollar, the exchange rate existing before the occurrence of terrorist attacks on the United States. Through this interference, the Bank of Japan transmitted the information to the market: The Japanese government will not allow the exchange rate of yen v. US dollar to rise to the level of 120 yen v. one US dollar.

Last December saw a steep fall in the exchange rate of Japanese yen. At that time, if the Bank of Japan and the Japanese government came out to announce that the government did not want to see the yen fall to the level of 130 yen against one US dollar, then the exchange rate of yen would have definitely picked up rapidly. But, as a matter of fact, Japanese government officials have either uttered not a single word or pretended to be just and fair, saying, "the depreciation of yen reflects Japan's economic situation, and the exchange level of Japanese yen is appropriate". These words and deeds actually encourage the fall of the value of yen.

Not long ago, an important figure of the Bank of Japan proposed that his bank should directly buy foreign assets for further increasing basic money supply. The US government also spread words: It would allow the Bank of Japan to buy US long-term bonds. Although this proposal met with the opposition of most members of the monetary policy committee of the Bank of Japan and thus had no result, some US government officials also came out to refute the rumor, the exchange rate of yen v. US dollar had therefore gone down.

It should be said that the devaluation of Japanese yen not only fails to stimulate the Japanese economy, but contrarily, it has plunged the economy into deeper depression, and cumbered the revitalization of the world economy. The Japanese government should think thrice before it releases relevant new policies.

The author Yu Yongding of this article is director of the World Economy and Politics Research Institute under the Chinese Academy of Social Sciences.



By People's Daily Online
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