I haven’t read or heard one bit of commentary on the spectacular plunge in the value of the Japanese yen. It has been stable in the region of 100 yen to the dollar for years but in the space of a few short weeks, it has fallen to 120 yen, a movement of 20 percent.
This is big stuff. One question is, who is doing it? I don’t think it is the Japanese government because something like $4 trillion changes hands each day in foreign exchange markets. No government can completely control its currency if it is freely convertible.
It therefore must be currency speculators in New York, London, Hong Kong and Singapore. They must be betting that the Japanese government is going to have to take further steps to stimulate the Japanese economy, and the speculators are getting ahead of that so that they can make bigger profits.
The implications of a yen that loses 20 or 30 percent in value are pretty enormous. Every Japanese company that manufacturers in Japan now has a new jolt of price competitiveness in world markets. The Koreans and Chinese and other East Asians will feel this and could be tempted to try to drive their own currencies lower.
American companies that compete against Japanese rivals, like General Motors and Ford Motor, will feel this drop in the yen very soon, if they haven’t already. Toyota and other car manufacturers will have leeway to drop prices or boost incentives, while pouring more yen into R&D and new product development.
There’s probably no way for the Japanese government to halt the yen’s loss in value because in most respects, it probably doesn’t want to. But even if it does wish to maintain a semblance of orderly trading, it is going to have to cooperate with other governments. Acting together, governments of the most powerful economies can stand against the disruptive speculators. That should become a priority soon.
