70 Finance & economics TheEconomistMay7th 2022
Japan’scurrencyLand of the
crashing yen
T
he lasttimetheJapaneseyendipped
below 130 to the American dollar, in
2002, China’s economy was smaller than
France’s, Vladimir Putin was meeting
Western officials with a smile, and Emi
nem, a rapper, was atop the popmusic
charts. The yen’s slide to that abyss, first
reached on April 28th and then every day
since, has been precipitous: it stood at just
115 to the dollar at the start of this year. Jap
anese policymakers have begun to fret,
leading markets to speculate about wheth
er they will intervene to halt the fall. That
would probably prove futile: deep forces
are driving the yen’s depreciation.
The most important one is the widen
ing gap in interest rates between Japan and
America (see chart). While prices have ris
en sharply in America, inflation in Japan
has remained below the Bank of Japan’s
(boj) 2% target. And though inflation may
touch that mark later this year, the boj
reckons it is being fuelled by oneoff in
creases in costs; idiosyncrasies of Japan’s
labour market have meant limited wage
growth. As a result, even as the Federal Re
serve has begun tightening rates, the boj
has maintained its ultraloose stance. At a
monetarypolicy meeting last week, the
bojreaffirmed that direction, pledging to
keep buying tenyear bonds to help control
the yield curve. With more money to be
made holding American bonds than Japa
nese ones, investors have snubbed the lat
ter, dampening demand for the yen.
Trade also plays a role in the yen’s woes.
Japan’s currentaccount balance went into
the red in December. Rising import costs
(which the Ukraine crisis has made worse)
have been the main culprit: fuel and raw
materials make up roughly onethird of Ja
pan’s import bill. In order to buy pricier
foreign goods, importers have been forced
to sell more yen. Japan’s borders have re
mained closed to inbound tourism due to
the pandemic, further weakening Japan’s
balance of payments.
Policymakers have traditionally seen a
weak yen as a positive for Japan and its po
werful exportfocused industries. Some
still do. They also now hope a bit of cost
push inflation may help to break Japan’s
entrenched deflationary mindset and to
force zombie firms out of the market. Yet
the yen has sunk to such lows that con
cerns are mounting. Consumers are get
ting squeezed by rising import prices; the
government announced another fiscalstimulus package in April to ease the pain
ahead of upperhouse elections expected
for July. Business sentiment has also
turned, even in the manufacturing sectors,
says Baba Naohiko of Goldman Sachs, an
investment bank.
One reason is Japanese firms’ gradual
but sustained efforts to mitigate the risks
of currency appreciation by offshoring
production. “The flip side,” Mr Baba says,
“is that they can’t reap as many benefits
from depreciation.” The stuff that is still
exported from Japan tends to be highval
ueadded goods, which tend to be less re
sponsive to changes in exchange rates. The
pandemic and supplychain snags have al
so hampered the export of some of these
products, such as automobiles.
Some reckon the yen could continue
falling, perhaps to 150 to the dollar, a level
unseen even during the Asian financial cri
sis of 199798 (when it fell to 147 to the
greenback). Inside the boj, some have ar
gued for shortening the target of the yield
curve control policy from tenyear bonds
to fiveyear ones, a form of soft tightening,
but that seems unlikely in the remainder
of the term of the current governor, Kuroda
Haruhiko, which runs until April 2023. A
turning point might come when Japan
reopens to foreign tourists, as expected
following the elections. Ultimately
though, argues Jesper Koll of Monex
Group, a financialservices firm, “the yen’s
fall from grace will stopandreverse exactly
when Japanese investors begin buying
their mother markets.” nTOKYO
Will an ever feebler currency save or
sink Japan’s economy?Losing currency
JapanSource:Bloomberg1401301201101002017 18 19 20 21 22Yen per $, inverted scale0-1-2-3-4
2017 18 19 20 21 22Ten-year government bonds, yield spread over
US Treasuries, percentage pointsLebanon’sbankingcrisisZombie defence
T
hiswas not how Rebecca Ego planned
to use her law degree. In 2020 she was
accepted into a master’s programme in
America. It would cost $20,000 after schol
arships, a sum she had in the bank. In Leb
anon, though, getting money out of the
bank is almost impossible: lenders have
imposed harsh, arbitrary capital controls
amid a financial crisis. Ms Ego was told she
could not withdraw her funds.
Like hundreds of Lebanese, she sued
her bank for breach of contract. The case
has languished for two years. One of her
banks subsequently shut her account,
cashing out her savings in a cheque no oth
er bank will accept. “There’s no legal basis
for any of this,” she says. “But there’s no
judge who will say that.”
For almost three years, Lebanon’s banks
have been zombies. The crisis dates to 1997,
when the central bank, the Banque du Li
ban, pegged the pound at 1,500 to the dol
lar. It sustained the peg by borrowing dol
lars from commercial banks at doubledig
it interest rates, a staterun Ponzi scheme
that unravelled in 2019.
Lebanon defaulted the following year.
Losses in the financial sector are estimated
at $68bn (130% of precrisis gdp). Earlier
this year the pound sank as low as 34,000
on the parallel market, a 96% depreciation.
On April 7th the imfreached a deal with
Lebanon, which could include a $3bn loan.
Before the fund’s board votes on the pack
age, though, it wants the Lebanese govern
ment to take steps to restructure the finan
cial sector, such as by passing a law
strengthening capital controls. Parliament
has dithered on the matter for two years. A
vote planned for April 20th was postponed.
With parliamentary elections set for May
15th, it is unclear when it might happen.
The vacuum has left banks to impose
their own rules. Most depositors can ac
cess only small sums in pounds. With
drawals from dollar accounts use unfa
vourable rates.
Local courts offer little relief. The De
positors Union, which represents thou
sands of savers, reckons there have been
more than 300 lawsuits against banks to
date. Only a handful have been resolved.
Foreign judges have been more expedi
tious. In December a French court ordered
Saradar Bank to pay $2.8m to a customer in
Paris. In February acourt in London hand
ed down a similar judgment in favour of a
LebaneseBritish businessman. Bank AuB EIRUT
Desperate Lebanese depositors take
their banks to court, with little success