Japan's Yen depreciation in 2023 and

Bank of Japan’s responses to the situation

A. Opening (Khánh Phương)

- Reason to choose this topic
1. Timely and Relevant: The Yen's depreciation in 2023 was an economical
crisis with ongoing effects. Studying this helps us understand recent
economic events and their impacts.
2. 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.
3. 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.
4. 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

Research scope: 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)
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.

B. Content
I. Theory (Linh + Mai Phương)
1. Concept of currency depreciation (Mai Phương)
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 (Thùy Linh)
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 a
large number of 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 (Ngọc)
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 JPY has depreciated by about 20% against the USD compared
to the beginning of the year (International Monetary Fund, 2023). 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
2022 (East Asia Forum, 2024). 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 interventions (Nikkei Asia,
2023). However, the Yen's depreciation resumed dramatically in May 2023.

The future direction of the Yen is complicated and will depend on a number of
factors, including the global economic outlook and the actions of major central
banks.
2. Causes behind big currency flop in 2023 (HuYen + Nam)
a) Bank of Japan's negative Interest rate policy (HuYen)
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.

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 2023 (trích dẫn và
so sánh với các tháng trước để thấy nó rose). A rise in inflation erodes the
purchasing power of the Yen. This meant that a larger amount of Yen was required
to purchase the same amount of goods and services domestically. The value of the
Yen depreciated accordingly.
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 Decades" – trying
to escape deflation. 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 recession. 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 ideal.

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 lag. 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 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. (Are You
Focusing on the Wrong Central Bank? | Charles Schwab)
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 (Thư + Vy)
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.

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 in light of 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 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 becomes 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 amount 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.

https://japannews.yomiuri.co.jp/editorial/yomiuri-editorial/20231002-140496/

4. Bank of Japan’s responses (An + Khánh Phương)

a. Policies (An)
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 still 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 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 slided. The
BOJ is ready to take action if currency moves have a big impact on their economic
and price forecasts.
b. Evaluation and forecast (Khánh Phương)
b.1. Evaluation
The BOJ's commitment to low-interest rates 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.
Higher profit margins for export-oriented companies.

b.2. Limitations of the BOJ's Policy

Yield Curve Control (YCC)’s effectiveness was limited. By setting interest rate
targets, the BOJ reduced Market Flexibility. Normally, interest rates move up and
down based on economic conditions. When the BOJ sets a target yield for
government bonds, it prevents this natural movement. This makes it harder for the
market to signal changes in inflation expectations or economic health. Moreover, to
maintain the target yield, the BOJ has to actively buy and sell government bonds.
This heavy intervention disrupts the natural supply and demand forces in the bond
market
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. Such as 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.
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.

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 (Trang + Dương)

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 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.

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.

C. 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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