Why Japanese Currency Yen Has Less Value Than Other Currencies

Overview
Though it is among the most traded currencies in the world, the Japanese currency yen (JPY) has stayed somewhat weak in comparison to other currencies such as the US dollar (USD), the euro (EUR), and the British pound (GBP). Japan’s monetary policies, economic stagnation, and worldwide market movements are among the elements that help to explain this. Still, why precisely does the Japanese currency yen have such a low value? Let’s investigate its weakness’s causes.
Background Information on the Japanese Yen Historically

The fast economic development of Japan in the 1980s made the yen a powerful currency. But the yen appreciated noticeably following the Plaza Accord in 1985, meant to devaluate the US dollar. This resulted in an asset bubble in Japan, which finally broke in the early 1990s to start the “Lost Decade” in that country.
Japan has then battled slow development, deflation, and economic stagnation. Ultra-low interest rates adopted by the Bank of Japan (BOJ) aimed at boosting the economy also helped to explain the long-term weakness of the Japanese currency yen.
Important Underlying Causes of the Weak Yen
1. Monetary Policies of the Bank of Japan
The BOJ keeps low or even negative interest rates, hence Japanese assets appeal less to investors. Ultimately, the Japanese currency yen has low value.
2. Easing Quantitative (QE)
To boost the economy, the BOJ prints more yen, therefore altering the money supply and devaluating the yen.
3. No Inflation
While other nations battle inflation, Japan has maintained low interest rates by fighting deflation over the years.
4. Globally Changing Market Patterns
The US dollar gains strength from the interest rate increases of the US Federal Reserve, which causes investors to sell yen in preference of dollars.
Comparison with Other Principal Currencies
• USD vs. JPY: The US boasts higher interest rates, which appeals to investors more of the dollar.
• JPY vs. EUR and GBP: The Bank of England and the European Central Bank keep their rates higher than Japan.
China’s central bank handles the yuan more aggressively although its economy is expanding faster than that of JPY.
Japan’s Inflation and Deflation
Japan suffers from deflation, a drop in prices that discourages expenditure and economic development, unlike the US and Europe which deal with inflation issues. Lower interest rates follow from this, which lessens the appeal of the yen to world investors. Ultimately, the Japanese currency yen has low worth.
Trade and Export Policies of Japan
An export-driven economy is what Japan is. A lower yen facilitates the competitive pricing sales of Japanese goods abroad by Japanese businesses. Higher import costs, particularly for raw goods and energy, do follow, though.
Government Debt and Affect on the Yen
At more than 250% of its GDP, Japan boasts among the highest national debt rates in the world. This reduces investor confidence and deters foreign capital, hence depreciating the Japanese currency yen.
Speculation in the Foreign Exchange Market
Considered a safe-haven currency, the yen is purchased by investors in uncertain times worldwide. Still, short-term swings in the value of the yen result from speculating in FX markets.
Japan’s Workforce and Demographics: Challenges
• Ageing Population: Among nations, Japan boasts one of the oldest populations.
• Low Birth Rates: Reduced productivity and slower economic growth follow from fewer young workers.
• Effect on the Yen: A declining workforce compromises the economy, so lowering demand for the yen. Ultimately, the Japanese currency yen has low worth.
The Part Global Economic Events Play
• Interest Rate Hikes by US Federal Reserve: Higher US dollar attraction for investors drawn by higher interest rates
• COVID-19 Pandemic: The yen suffered as Japan’s delayed economic recovery undermined
• Geopolitical Tensions: Investors often flee the yen in response to global unrest.
Dependency of Japan on Energy imports
Japan imports most of its natural gas and oil as well as other fuels. Rising world energy costs force Japan to spend more yen on foreign currencies, therefore compromising its value. Finally, the Japanese currency yen has low worth.
The Carry Trade and Its Influence on the Yen
Investors using the carry trade borrow low-interest-rate yen and invest in higher-yielding currencies like the US dollar. Constant selling of yen reduces its value in world markets.
Government Policies to Consolidate the Yen
• Currency Interventions: Japan has sporadically entered forex markets to boost the yen.
• Change in Monetary Policy: The BOJ might raise future interest rates.
• Structural Reforms: Policies meant to support more economic growth could assist in supporting a better yen.

Prospects for the Japanese Yen Going Forward

• Certain analysts think the yen will stay weak as long as the BOJ maintains rates low.
•  But should inflation increase in Japan, the BOJ might have to boost interest rates, therefore strengthening the yen.
• Long-term economic changes might also enable Japan to restore the value of the Japanese currency yen.

Conclusion

Low interest rates, economic stagnation, and government policies combined have made the Japanese currency yen still weak. A lower yen raises import costs and lowers consumer purchasing power even while it helps exporters. Future monetary policy decisions, world market movements, and economic reforms will determine whether the yen strengthens or not.