FOREIGN TRADE UNIVERSITY

SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS

MACROECONOMICS GROUP WORK

TOPIC: JAPAN'S YEN DEPRECIATION IN 2023 AND BANK OF
JAPAN’S RESPONSES TO THE SITUATION

Class code: KTE204E(2324-2)1.1

Class: Advanced program of international
business economics - Group 4
Instructor: Assoc.Prof Hoang Xuan Binh

Hanoi, April 2024

 Group 4
Name Student ID Task
- Group leader
1 Phạm Thị Thu Huyền 2312140805
- Bank of Japan’s negative interest rate policy
- Opening
2 Nguyễn Khánh Phương 2312140810 - Evaluate and give forecast of Bank of Japan’s
policies to cope with the Yen depreciation
- Overview of Bank of Japan
3 Đinh Thái Thùy Linh 2312140031
- State of the big currency flop in 2023
Recommendation for Japan to deal with currency
4 Nguyễn Thị Thùy Dương 2312140015
flop 2023
Recommendation for Japan to deal with currency
5 Đỗ Thu Trang 2311140707
flop 2023
Negative effects of Japan’s currency depreciation
6 Phan Thị Thảo Vy 2312140057
in 2023
7 Đào Nguyễn Hoài An 2312140005 Bank of Japan’s responses to the situation
Positive effects of Japan’s currency depreciation
8 Bùi Đoàn Anh Thư 2312140812
in 2023
9 Lê Thị Mai Phương 2311140704 Concept of currency depreciation
10 Nguyễn Yến Ngọc 2312140044 State of the big currency flop in 2023
- Japan’s carry trade unwinding
11 Lê Vũ Hoài Nam 2313140041
- Conclusion

1
Contents
Opening ..................................................................................................................................... 3
Content ...................................................................................................................................... 4
I. Theory .............................................................................................................................. 4
1. Concept of currency depreciation ........................................................................... 4
2. Overview of Bank of Japan ..................................................................................... 4
II. Japan's currency devaluation in 2023 .......................................................................... 4
1. State of the big currency flop in 2023 ...................................................................... 4
2. Causes behind big currency flop in 2023 ................................................................. 5
a) Bank of Japan's negative Interest rate policy………………………..…………….5
b) Japan’s carry trade unwinding………....…………………………………………7
3. Effects of Japan’s currency depreciation in 2023 ................................................... 8
a) Positive effects………………………………………..……………………………....8
b) Negative effects………………………………………………..………………….….9
4. Bank of Japan’s responses ...................................................................................... 10
a) Japan's policies……………………………………………………………………..10
b) Evaluation and forecast………………………………………………….……..….11
III. Recommendation ................................................................................................. 12
Conclusion ............................................................................................................................... 15
References……………………………………………………………………………………16

2
 Opening
1. Reason to choose this topic:
- Timely and Relevant: The Yen's depreciation in 2023 was an economic crisis with
ongoing effects. Studying this helps us understand recent economic events and their
impacts.
- Policy Debate: The Bank of Japan's response to the depreciation has been a subject of
debate. Researching their actions and the arguments for and against them helps us
understand the complexities of central bank policy.
- Wider Economic Impact: A weak Yen affects the economy, consumers, and inflation.
By exploring these effects, this research can provide better insights into business
interactions.
- Potential for Future Developments: The Yen's depreciation and the Bank of Japan's
response have long-term consequences. This research can analyze potential future
scenarios and their economic implications.
This research aims to analyze the complex interplay between the significant
depreciation of the Japanese Yen in 2023 and the Bank of Japan's (BoJ) policy
responses. The objective of this research is to analyze the causes and consequences of
the Yen's depreciation in 2023, along with the effectiveness of the Bank of Japan's (BOJ)
responses to the situation. This analysis will be achieved by discussing some of the
economical concepts, exploring the Bank of Japan and the overview of currency
depreciation and researching the cause and effect of the currency depreciation along
with how Bank of Japan respond to the situation.

2. Research scope:
We focus on the significant depreciation of the Japanese Yen in 2023 and the Bank of
Japan's policy responses. It will aim to comprehensively analyze the causes,
consequences, and effectiveness of the BOJ's actions. To explore the causes of Yen
Depreciation, we focus on Bank of Japan’s negative interest rate and investors’ lack of
confidence in the Yen. The effects of big currency depreciation in Japan 2023 will be
discussed based on the positive effects on export-oriented and tourism industry and the
negative effect on import-oriented industry. About Bank of Japan’s responses, we will
talk about its existing policy (ultra-loose monetary policy with price stability of 2%,
negative interest rate of -0.1% and Quantitative and Qualitative Monetary Easing (QQE)
with Yield Curve Control along with the policy framework changes (raise interest rate
to around 0% to 0.1% and abandon yield curve control)

3. Research method:
We focus mainly on online sources and do our research through reputable financial news
websites, governmental websites, and research papers. We also use some reliable
artificial intelligence sites for extra help.

3
 Content
I. Theory
1. Concept of currency depreciation
A depreciation is a fall in the external value of one currency against another. Depreciation
happens naturally due to market forces.

For example: the Australian dollar might depreciate against the US dollar so that one Australian
dollar buys less of the US currency.

A currency depreciation could be caused by some reasons. Firstly, a fall in the world price of a
country’s major export. This leads to a decline in export revenues and a fall in overseas demand
for the exporting nation’s currency. Secondly, a surge in the value of imports causes a deficit
on the current account of the balance of payments which leads to a net outflow of currency,
causing exchange rate weakness. Another reason is a country’s central bank reduces interest
rates, leading to a net outflow of hot money - this is a short-term financial capital that searches
for the best risk - adjusted rate of return. The last one is depreciation might be caused by
intervention from the Central Bank e.g., it goes into the market to sell their own currency and
buy gold and foreign currencies.

Currency depreciation can have both positive and negative consequences. On one hand, it can
make a country's exports cheaper and more competitive in the global market. On the other hand,
it can make imports more expensive, leading to inflation. It can also reduce the purchasing
power of people within the country.

2. Overview of Bank of Japan

A central bank is the financial institution at the heart of a country's economic system with 3
major functions. First, the Central bank is designed to oversee the banking system and regulate
the quantity of money in the economy by its monopoly in printing money. By this, it can
influence the money supply according to the economy’s needs. Second, the Central bank also
regulates foreign reserves of a nation and represents the country in international monetary
organization or monetary agreement, including the International Monetary Fund (IMF), World
Bank, Group of Twenty (G20), or regional monetary unions. Particularly, foreign reserves refer
to a country's holdings of foreign currencies, gold, and other assets denominated in foreign
currencies. Finally, the Central bank is the lender of last resort of commercial banks. With three
tools, namely Open market operation (OMO), required reserve rate (rrr) and discount rate, the
Central bank controls the money supply to aim for price stability, full employment, and a stable
financial system rather than focusing on profits and making money like commercial banks.

Regarding the Bank of Japan, it was established in 1885 with almost every above-mentioned
function to control the economic performance. Due to Japan's prolonged deflation, starting
around the mid-1990s, the BOJ is famous for its continued ultra-loose monetary policy. To
exercise this act, the BOJ has kept the interest rate nearly 0 percent to encourage borrowing and
investment. Moreover, it also purchased many government bonds to inject money to the
economy. These actions are operationalized to deal with recession, particularly the issue of
deflation in Japan.

II. Japan's currency devaluation in 2023

1. State of the big currency flop in 2023
Overall, The Japanese Yen (JPY) has experienced a volatile year and has depreciated
significantly against other major currencies, especially the USD. As of December 2023, the
4
JPY has depreciated by about 20% against the USD compared to the beginning of the year.1
Particularly, the Japanese Yen's depreciation accelerated against the US dollar starting in March
2022, and continuing into 2023. Against the US dollar, the Yen depreciated by around 30%
since early 2022, reaching a peak of 150 Yen per dollar in October 20222. The USD/JPY
exchange rate surpassed 150, the highest level since August 1990. Yen also depreciated against
other currencies like euro, pound sterling, and Swiss franc, indicating a substantial weakening
of the Yen compared to the US Dollar...

Japan's exchange rate environment underwent a significant shift in 2022, marked by a sharp
depreciation of the Yen. In response to this rapid depreciation, the Ministry of Finance
conducted two rounds of foreign exchange interventions3. However, the Yen's depreciation
resumed dramatically in May 2023.

The future direction of the Yen is complicated and will depend on several factors, including the
global economic outlook and the actions of major central banks.

2. Causes behind big currency flop in 2023

a. Bank of Japan's negative Interest rate policy
Reacting to the situation where the Yen tumbled even further compared to 2022, the Bank of
Japan put forward the policy of negative interest rate. Negative interest rates is a situation where
the interest rate on a loan or savings account is below 0%. In the case of Japan, they kept the
interest rate around -0,1% throughout the year. This means that borrowers are essentially paid
to borrow money, and savers are charged a fee to store their money. If a Japanese deposits 1
million Yen in their bank account, they will receive a smaller amount of money when they
withdraw it. As a result, Japanese would rather use their money to buy goods and services or
invest their money in accounts or projects that generate positive returns than pay a fee to store
it in a bank account.
4

1 International Monetary Fund, 2023

2 East Asia Forum, 2024
3 Nikkei, 2024
4 Federal Reserve Board

5
5

When Japanese people took their money out so suddenly, the money supply in an economy
grew at a faster rate than the economy's ability to produce goods and services, which led to a
higher inflation rate. The inflation rate in Japan 2023 exceeded the Bank of Japan's 2% target
and reached 3.2% in May. A rise in inflation erodes the purchasing power of the Yen. This
meant that a larger number of Yen was required to purchase the same amount of goods and
services domestically. The value of the Yen depreciated accordingly.

5 Bank of Japan
6
In the situation where the Yen gradually lost its value, the Bank of Japan unexpectedly imposed
a policy that weakened the Yen even more. This left us a big question about the ulterior motives
behind their practice. Dig a little deeper into the economic struggles of Japan, the country
experienced three "Lost Decades6" – trying to escape deflation7. A key consequence of deflation
in Japan is the decline in aggregate demand, the total amount of goods and services demanded
in an economy. As prices fell, Japanese consumers tended to postpone purchases in anticipation
of further price reductions. This wait-and-see approach leads to a decrease in people's
consumption. Businesses could not profitably produce products that were not consumed. In
other words, they faced pressure to reduce costs to maintain profitability in the face of falling
prices. This translated to downward wage pressures for workers. Lower wages then reduced
disposable income, further dampening aggregate demand, and perpetuating the deflationary
spiral.

Deflation is more dangerous than inflation because it drags the economy deeper into recession8.
As a matter of fact, Japan might have decided to make a trade-off. They lowered the interest
rate to below 0% to create inflation, which is opposite to deflation. However, the inflation rate
in Japan is 3.2% in 2023 (below 6,5%), which is controllable.9

The implementation of a negative interest rate policy in Japan, initiated in 2016, did not
immediately translate to a depreciation of the Yen. This suggests that other factors were at play
in the currency's decline, observed in 2022. The emergence of the COVID-19 pandemic in late
2019 likely served as a significant catalyst. As evidenced by the aforementioned graph, a period
of pandemic-induced quarantine led to a noticeable decrease in consumer spending within
Japan. However, by 2021, with a marked decline in COVID-19 cases and the subsequent lifting
of emergency measures by the Japanese government, a surge in demand for goods materialized.
Unfortunately, the domestic economy had not fully recovered from the pandemic's disruptions,
resulting in a supply-side lag10. This inability to meet the renewed demand with a commensurate
increase in production triggered inflation in Japan. The confluence of these events, coupled
with the Bank of Japan's negative interest rate policy, positioned Japan on a gradual path away
from deflation.

b. Japan’s carry trade unwinding

Carry trade is a financial strategy where investors borrow money in a currency with low interest
rates (like the Japanese Yen) and use it to invest in assets in a different currency that offers
higher returns. Investors profit from the interest rate differential, as long as the exchange rate
between the currencies remains stable. However, this strategy comes with risks, especially if
currency values change unfavorably. Carry trade unwinding happens when many investors
decide to exit their carry trade investments all at once. This usually occurs when the risks
become too high or the profits from these investments drop. When investors unwind their carry
trades, they sell off their higher-yielding investments and pay back the loans in the low-interest
currency.

More on Japan; according to data from the Bank of Japan (BOJ), the Yen carry trade has led to
net investment outflows for more than a decade. This means that more money has been leaving
Japan for investments in other countries than has been coming in from abroad. However, in late
2022, due to BOJ’s ultra-low monetary policy that affect interest rates and currency values, the

6 The Research Institute of Economy, Trade and Industry (RIETI)

7 Statistics Bureau of Japan
8 Tạp chí cộng sản Việt Nam
9 National Institute for Finance of Vietnam
10
Ministry of Finance of Vietnam
7
cost of hedging investments in foreign bonds (using financial contracts to protect against
currency and interest rate risks) became so high that it led to a negative carry when the cost of
holding these investments exceeded the income they generated. In response to this, Japan's
pattern of net capital outflow—where more investment money was leaving the country than
entering it—reversed into significant net capital inflows. Investors began moving their money
back into Japan, turning away from the Yen carry trade as it became less profitable to invest
abroad and hedge those investments.

While unwinding a carry trade typically leads to Yen appreciation, a large-scale exodus can
trigger a surprising depreciation. According to the International Monetary Fund (IMF)
research on "Anatomy of Sudden Yen Appreciations”, this triggered a massive unwinding of
carry trades. Investors dumped their high-yielding currencies (like the US dollar) and rushed to
repay Yen loans. This sudden surge in Yen supply, estimated in the billions by market analysts,
overwhelmed the typical appreciation effect. The key is, unlike the US Federal Reserve, the
Bank of Japan was stuck at a zero lower bound for interest rates. This meant they couldn't raise
rates to make the Yen more attractive. The Yen, instead of appreciating as expected, started
weakening against the dollar. This depreciation became self-fulfilling, as the initial drop fueled
further unwinding. Investors, fearing even greater losses, rushed to exit carry trades, further
weakening the Yen. This rapid unwinding cycle demonstrates how, in extreme circumstances,
the Yen's traditional behavior in carry trades can be flipped completely.

3. Effects of Japan’s currency depreciation in 2023

a. Positive effects:
The currency flop makes Japanese exports cheaper for foreign buyers. This can lead to a
significant increase in the volume of goods exported, which benefits manufacturers and
exporters in Japan. Imagine a product that costs $100 to buy from Japan. If the Yen weakens,
it becomes cheaper in dollars, potentially increasing demand from foreign buyers and giving
Japanese companies a competitive edge. Export-oriented industries such as automotive,
electronics and machinery benefit from increased sales.
8
A weaker Yen makes traveling to Japan more affordable for foreign tourists. According to
Bloomberg, Japan welcomed 25 million tourists in 2023, the largest number since 2019, as a
weak Yen helped attract post-pandemic visitors in a boost to the nation’s fragile economy.
Larger numbers of tourists help bring money into the economy and fuel spending in Japan’s
most visited regions, helping to prop up the nation’s sputtering recovery.

The depreciation of Yen makes Japanese assets relatively cheaper for foreign investors when
measured in their home currencies. This makes Japan an attractive destination for foreign direct
investment (FDI) and portfolio investment (FPI), as investors seek opportunities to capitalize
on potentially undervalued assets.

Many Japanese companies have overseas subsidiaries. With a weaker Yen, the profits earned
in foreign currencies become more valuable when converted back to Yen. This can encourage
companies to repatriate more profits, increasing the overall flow of money back into Japan.

b. Negative impacts:
Given the widening interest rate gap between Japan and the rest of the world, it is natural for
the Yen to drop. Though welcomed for making exports more competitive, the depreciation is
raising the import prices, notably for key energy items such as oil, which can trigger inflation.
As Japan relies on imports for much of its fuel and food, a weaker Yen has put strain on import-
dependent industries and households.

Japan’s import

Gasoline prices have been subsidized by the government but temporarily hit an all-time high in
September 2023. Prices of imports ranging from luxury cars to expensive watches to
smartphones also hiked considering Yen weakness. For example, the price of a new-model
iPhone has tripled to 190,000 Yen over the past decade, equivalent to 60% of the average
9
monthly salary in Japan while salaries have remained broadly unchanged over that period. Food
prices are also rising sharply due to higher distribution costs and increased prices of packaging
materials.

Higher import costs have dealt a direct blow to firms. According to Tokyo Shoko Research, 38
firms have already filed for bankruptcy due to the weak Yen through September 2023. Inflating
costs of raw material imports brought on by weak Yen continue to squeeze the profit margins
of firms in import-dependent industries. Dairy and other companies are also hit by the soaring
cost of imported feed and other raw materials.

According to the Bank of Japan, imported goods now account for 34% of durable consumer
goods, such as home appliances and furniture, up 1.7 times from a decade earlier. As Japanese
consumers are buying more imported products, they are more sensitive to the higher prices
spurred by the Yen's weakness. The rise in Japan's consumer price index for August 2023,
excluding perishables, was 3.1% above the figure recorded the same month last year. Narrowed
down to foodstuffs, the increase reached 9.2%. The Yen’s weakness now become a pain point
as soaring prices have strained household budgets, thereby reducing Japanese purchasing
power.

With the plunging yen, a growing number of young Japanese are applying for “working
holiday” visa programs, which allow them to engage in employment while spending holidays
in some countries such as Australia and Canada. They are taking advantage of this program to
escape low wages in Japan and earn higher wages in Yen amid its weakness against major
currencies. In addition, many sectors in Japan, including tourism and construction, are grappling
with labor shortages. Many industries rely on foreign workers, but the weak Yen reduces the
number of wages after conversion into the home countries’ currency. Some say the appeal of
working in Japan has diminished, making it more difficult to lure foreign workers to Japan.

4. Bank of Japan’s responses

a. Policies
The Bank of Japan (BOJ), as the central bank of Japan, decides and implements monetary policy
with the aim of maintaining price stability. The basic stance for monetary policy is decided by
the Policy Board at Monetary Policy Meetings (MPMs). At MPMs, the Policy Board discusses
the economic and financial situation, decides the guideline for money market operations and
the Bank's monetary policy stance for the immediate future, and announces decisions
immediately after the meeting concerned.

In order to overcome deflation as early as possible and achieve sustainable economic growth
with price stability, The Bank of Japan conducts monetary policy based on that principle. In
January 2013, The BOJ set the price stability target at 2 percent in terms of the year-on-year
rate of change in the consumer price index (CPI). The Bank recognizes that the inflation rate
consistent with price stability on a sustainable basis will rise as efforts by a wide range of
entities toward strengthening competitiveness and growth potential of Japan's economy make
progress. And until now, the BOJ keeps this target.

The BOJ’s existing policy is ultra-loose monetary policy and despite Yen depreciation in 2023,
their monetary policy remained unchanged throughout the year. After facing a prolonged period
of deflation during the 1990s and early 2000s and global financial crisis in 2008, the BOJ
decided to implement “Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve
Control (YCC) in 2016 to stimulate economic growth. QQE is a form of monetary policy in
which a central bank purchases securities from the open market to reduce interest rates and

10
increase the money supply. In January 2016, The BOJ introduced a negative interest rate policy
as part of its QQE program. Under this policy, the BOJ charges a negative interest rate of -0.1%
on excess reserves held by commercial banks at the central bank, which means that borrowers
are essentially paid to borrow money while savers are charged a fee to store their money. The
policy had some immediate effects on the Japanese economy but also posed several challenges.
So in the same year in September 2016, the BOJ introduced the Yield Curve Control. Yield
curve control (YCC) involves targeting a longer-term interest rate by a central bank, then
buying or selling as many bonds as necessary to hit that rate target. Under this policy, the BOJ
targets a 10-year government bond yield of around 0%.

Concerning the monetary policy statement made on December 19, 2023, the BOJ decided to
continue with monetary easing regardless of Yen flop as they considered this movement as part
of interest rate differential. Japan’s negative interest rates and rising inflation in the US and
other countries make the Yen less attractive to investors compared to the dollar, or euro. This
leads to selling pressure on the Yen as investors sell Yen to invest in currencies with higher
returns. Moreover, they regarded there were extremely high uncertainties surrounding
economies and financial markets at home and abroad and the ultra-loose monetary policy was
consistent with their long-term objective of achieving the price stability target of 2 percent,
accompanied by wage increases. Japan’s central bank has been cautious in unwinding its long-
held ultra-loose monetary policy, wary that any premature move could jeopardize recent
nascent improvements. "We have yet to foresee inflation stably and sustainably achieve our
price target. That's why we must patiently maintain ultra-loose monetary policy," Ueda told a
press briefing after the policy decision. However, there were strong indications that the BOJ
was moving towards policy changes to address the weak Yen. “When we can foresee inflation
steadily and sustainably hitting 2%, we will consider ending YCC or revising negative interest
rates”_Kazuo Ueda - the Governor.

On March 19, 2024, The Bank considered that the policy framework of Quantitative and
Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate
policy to date have fulfilled their roles. The BOJ decided to raise its short-term interest rates to
around 0% to 0.1% from -0.1% at the end of its two-day March policy meeting. They also
abolished their radical yield curve control policy for Japanese sovereign bonds, which the
central bank has employed to target longer-term interest rates by buying and selling bonds as
necessary. “The likelihood of inflation stably achieving our target has been heightening... the
likelihood reached a certain threshold that resulted in today’s decision,” BOJ Governor Kazuo
Ueda said at a press conference after the central bank’s decision.

After the decisions of the BOJ, Yen weakens. The Yen weakened sharply to beyond 150 to the
dollar — a level that previously prompted intervention from Japanese authorities. “As always,
I won’t comment on short-term currency moves,” Ueda said at the press conference. “But if
currency moves have a big impact on our economic and price forecasts, we will stand ready to
take an appropriate monetary policy response.”

In summary, throughout the year 2023 of Yen depreciation, the Bank of Japan did not change
their policy but stuck to the ultra-loose monetary policy. They considered the Yen flop as part
of interest rate differential and the ultra-loose monetary policy was consistent with their long-
term objective, so they needed more time to exit from this policy. On March 19, 2024, the BOJ
made changes to their monetary policy framework. However, after this pronouncement, Yen
slides. The BOJ is ready to act if currency moves have a big impact on their economic and price
forecasts.

11
b. Evaluation and forecast
b.1. Evaluation
The BOJ's commitment to low-interest rates and quantitative easing aimed to stimulate
economic growth and prevent deflation. This could be seen as positive for long-term economic
health since higher interest rates can reduce borrowing, increase saving and decrease buying,
make steak and bonds less attractive…

A weaker Yen can make Japanese exports more competitive in the global market. When the
Yen weakens, it becomes cheaper for foreign buyers to purchase Japanese goods. Imagine a car
priced at 100,000 Yen. With a strong Yen, this might translate to $1,000 USD. But with a
weaker Yen, it could translate to only $800 USD. This lower price tag makes Japanese products
more attractive to foreign buyers.

For Japanese manufacturers, even if they sell their products at the same price in foreign
currency, the weaker Yen translates to more Yen earned per unit sold. This translates to higher
profit margins for export-oriented companies.

b.2. Limitations of the BOJ's Policy

While Yield Curve Control (YCC) aimed to control long-term interest rates and prevent a sharp
Yen depreciation, its effectiveness was limited. The significant external pressure from central
banks like the Fed (central bank and monetary authority of the United States) raising rates
caused the Yen to weaken despite YCC. By setting interest rate targets, the BOJ limits market-
driven adjustments. This can hinder efficient allocation of capital and potentially distort
markets.
YCC might be more effective on short-term rates. Long-term rates are influenced by broader
economic factors like growth expectations, making them less susceptible to YCC's influence.
Moreover, exiting YCC can be difficult. The BOJ might need to sell significant amounts of
bonds to raise interest rates, potentially causing market disruptions.

b.3. Forecast
The BOJ's response prioritized maintaining low interest rates to support the domestic economy,
but the effectiveness of YCC in reducing the Yen's low level is still an issue. The new
management of the Bank of Japan may decide to switch to traditional management. However,
when approaching this change, it is necessary to be careful not to affect the recovery.

The most sustainable solution likely lies in a different but slightly similar approach. Combining
controlled monetary policy adjustments with structural reforms aimed at boosting domestic
growth and resilience offers the best chance for long-term stability and a stronger Yen. This
could involve:
• Phased Rate Increases: In March 2024, Japan raised the interest rate and the Yen
once again got deeply depreciated. However, in order to address inflation,
stabilize the Yen without derailing growth, we guess that the BOJ will continue
to gradually increase the interest rate.
• Maintaining YCC: The BOJ might stick with YCC but with some adjustments,
like allowing for more flexibility in the target yield range.

III. Recommendation for Japan to deal with currency flop 2023

1. Strengthening policy coordination and communication
Strengthening policy coordination and communication is vital for ensuring stability and
fostering economic growth. Enhanced communication between the Bank of Japan (BOJ) and
the government is essential. Clear and consistent messaging regarding the future direction of
monetary policy can effectively manage market expectations and contribute to stabilizing the
12
Yen. For sustainable economic growth, it's crucial to pair the central bank's strategy, whether it
involves lowering interest rates or implementing quantitative easing (QE), with a coordinated
fiscal policy approach. Furthermore, collaboration with international partners, particularly other
central banks like the US Federal Reserve, is critical. Coordinating policies on a global scale
can help mitigate the disruptive effects of divergent monetary policies on exchange rates,
promoting greater stability in the global economy.

2. Addressing structural issues

Addressing structural issues is imperative for Japan to build a more resilient economy less
susceptible to external shocks, given its longstanding challenges such as deflation, low
productivity, and an aging population. One key strategy involves investing in innovation and
technology. By fostering research and development, particularly in sectors like robotics and
artificial intelligence, Japan can enhance productivity and competitiveness on a global scale.
Additionally, promoting labor market reforms is essential. Increasing participation in the
workforce among women and the elderly can help alleviate labor shortages and stimulate
economic growth by tapping into previously underutilized talent pools. These measures are
essential for Japan to overcome its structural obstacles and lay the foundation for a more
dynamic and sustainable economy.

3. Diversifying economic strategies:

The Japanese government's focus on bolstering the private sector and enhancing business
activities is crucial for driving economic growth and overcoming long standing challenges. By
emphasizing the pivotal role of the private sector in stimulating economic growth, Japan can
create a more dynamic and resilient economy. Moreover, fostering innovation and
entrepreneurship through these measures can lead to job creation, increased consumer spending,
and overall economic prosperity. Therefore, the government's commitment to promoting
private sector development is essential for achieving sustainable economic progress in Japan.

Adjusting policies to maintain stable domestic consumption is crucial for Japan to balance its
goals of fostering economic growth while keeping inflation in check. By carefully managing
policies related to taxation, government spending, and monetary measures, Japan can encourage
consumer confidence and spending without risking runaway inflation. This involves
implementing measures that support household income, such as targeted tax cuts or subsidies,
while also ensuring that inflationary pressures are kept in check through prudent monetary
policy. Striking this balance is essential for sustaining economic expansion while safeguarding
the purchasing power of consumers, ultimately contributing to long-term stability and
prosperity in Japan's economy.

4. Speculation:
Reviewing and potentially adjusting the Bank of Japan's (BOJ) negative interest rate policy is
crucial in the context of maintaining ultra-loose monetary policy to stimulate growth. One
approach the BOJ could explore involves targeting a yield curve control. Rather than
persistently keeping short-term interest rates negative, the BOJ could set specific yield targets
for longer-term government bonds. This would allow for some upward movement in short-term
rates while still providing overall stimulus to the economy. Additionally, introducing tiered
deposit rates could be beneficial. By offering different interest rates for banks based on the
amount of reserves they hold, the BOJ could incentivize banks to lend more to businesses and
individuals, thereby boosting economic activity. These adjustments could help mitigate the
negative effects of the current policy on the Yen while continuing to support economic growth.

13
Though this is our suggestion for Japan in 2023, there were significant changes in Japan policies
in 2024. After 8 years of implementation with many controversies, the Bank of Japan (BOJ)
had a historic turning point when it stopped its negative interest rate policy. BOJ on March 19
announced to raise short-term interest rates to 0-0.1%, instead of -0.1% as before.

14
 Conclusion
In conclusion, the depreciation of the Japanese Yen throughout 2023, followed by the Bank of
Japan's policy responses, presents a nuanced case study in contemporary economic policy and
its ramifications within Japan. This situation highlights the challenges central banks face in
navigating currency depreciation amidst varied national economic dynamics. The Yen's
significant depreciation brought about a complex interplay of domestic economic pressures and
market forces, prompting varied responses from the Bank of Japan. These responses, including
maintaining ultra-loose monetary policy and later adjusting interest rates and abandoning yield
curve control, underscore the delicate balance central banks must strike between stimulating
economic growth and maintaining currency stability within the national context.

Moreover, the Bank of Japan's strategies reveal the inherent trade-offs and potential
consequences of prolonged ultra-loose monetary policies, particularly within a complex
domestic economic landscape. While these policies aimed to combat deflation and spur
economic activity, they also contributed to the Yen's depreciation, impacting the domestic
economy and its broader economic dynamics. The eventual policy shift in 2024 indicates a
recognition of these challenges and a nuanced approach towards fostering economic stability
and growth while attempting to mitigate adverse effects on the currency.

This analysis underscores the importance of adaptive policy frameworks that can respond to
evolving economic conditions while considering both short-term impacts and long-term
objectives. It also highlights the role of structural reforms in enhancing economic resilience and
stability within Japan. As Japan continues to navigate its economic trajectory, the experiences
of Japan and the Bank of Japan provide valuable insights into the complexities of monetary
policy, currency management, and their broader economic implications.

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