In Japan, a weak yen was traditionally believed to enhance competitiveness and economic health. Last year, as the yen hit a 37-year low, major firms like Toyota reported record profits and stocks soared. However, this currency depreciation has only raised costs for ordinary citizens, stifling household spending and leading to slower economic growth of 0.1% in 2024. While currency weakening can stimulate exports, it also reduces consumer purchasing power, as illustrated by Japan's current economic challenges, contrasting sharply with stronger US consumption post-Covid-19.
For decades in Japan, it was accepted as gospel: A weak currency makes companies more competitive and bolsters the economy. Part of that promise came true last year.
Yet for the majority of Japanese households, the weakened yen has done little more than drive up the costs of basic living expenses, such as food and electricity.
Japan provides an example of what can happen when a depreciated currency, even if it helps exports, crushes consumer purchasing power by worsening inflation.
The figures released on Monday show that household spending shrank slightly in 2024, after expanding in the previous three years.
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