Depreciation of the yen

On 28 April, the yen slumped to the 130 range against the US dollar, a 20-year low. In real terms, it is at its cheapest since the 1970s. A cheaper yen means that exports from Japan become more affordable, benefiting exporters. Conversely, firms that trade yen for imported goods (including raw materials) will have to pay higher prices. While companies on both sides of the equation and consumers at large seek to lock in profits or hedge their bets, everyone turns to economists with the same question: will the yen slide further?

The chief factor for this latest fall has been higher global commodity prices, which has taken a toll on Japan’s current account surplus. Nevertheless, the BoJ’s consistently doubling down on a loose monetary policy and its sustained purchase of government bonds have put enormous pressure on the yen against the dollar, even as the Fed tightens its own financial controls through higher interest rates. What are the implications of a record-low yen for businesses? How can they prepare and what can they expect in the short run?