Japan’s Currency Crisis and Its Implications

This created a real estate bubble that artificially inflated the price of real estate.2 When it burst in 1991, the bubble triggered a deflationary crisis within the economy which led to a run on the banks, investments being wiped out overnight and the value of the yen rising to prohibitive heights. [...] In 1995, when the crisis reached a head with the collapse of the three largest banks in the country, Japan entered a period of steep deflation that has come to be called the ‘lost decades’.3 In a deflationary economy, prices of goods and services fall, the value of a currency increases and consumers have more purchasing power to increase their consumption. [...] Even the new wage increases are not matching rises in the cost of living caused by the weakening yen, leading Kishida to explicitly declare as a policy plank the promise to cajole private enterprises to keep raising wages tied to inflation.14 On 18 March 2024, the BoJ’s new governor Kazuo Ueda announced an end to the yield curve control policy as well as a tapering-off of QE, ending the 12-year-lo. [...] While the former is now seeing a wave of cancellations brought about by spiralling costs of construction,24 the latter has seen Japan concede the title of third largest economy to Germany due to the weak yen, with projections seeing India slated to take over Japan a full year before schedule.25 A silver lining of the yen crisis has been the exponential increase in the number of tourists coming to. [...] Though East Asian countries were late to open in the wake of the COVID-19 pandemic, the depreciation in the value of the yen has driven tourist flows up to levels seen pre-pandemic, only to exceed them this year.26 However, the silver lining has proven to be a double-edged sword for Japanese municipalities.