A Japanese supermarket Photo: VCG

 
The Japanese yen, as one of the major international currencies, has seen the largest depreciation this year amid US' fast paced interest rate hikes and growing geopolitical tensions. Given weak growth expectations for the world's third-largest economy, the depreciation trend may continue and the currency may lose its status as a safe haven asset, experts said Wednesday.

The US dollar rose to a two-week high buoyed by rising US 10-year Treasury yields, pushing the Japanese yen to a fresh 20-year low of 133.22 per dollar on Wednesday. The yen has dropped about 15 percent this year against the US dollar, Yahoo News revealed.

One of the direct reasons for yen's sharp depreciation is the widening gap between the yen and the dollar, since the US Federal Reserve began to accelerate the pace of interest rate hikes, the Bank of Japan has stuck to its super-loose monetary policy as the economy continues to struggle with the impact of the coronavirus pandemic, Zhang Jifeng, a former vice director of the Institute of Japanese Studies at the Chinese Academy of Social Sciences, told the Global Times on Wednesday.

"The risk clearly outweighs any possible benefit," Zhang said, noting that a falling yen, along with global inflation and the Russia-Ukraine conflict, hits Japanese consumers hard as product prices soar while their salaries remain flat.

According to a survey conducted by Japanese credit research firm Teikoku Databank Ltd, more than 10,000 food items in Japan will experience price rise of an average 13 percent this year due to rising materials costs and the yen's rapid depreciation, Kyodo News reported.

The survey found that 105 major food manufacturers had raised prices on more than 6,000 products by June, with price hikes planned for an additional 4,504 products starting from July.

Fast Retailing, owner of Japanese clothing brand Uniqlo, said on Tuesday that it would raise prices on some items this autumn. Prices for fleeced goods and down jackets in the fall and winter products will increase by 1,000 yen ($7.54), and the company is also increasing the use of recycled polyester in its fleece products to cut costs, Reuters reported.

Despite the negative impacts, Japan's central bank has vowed to take an unwavering stance on its ultra-loose monetary policy on Monday, with Governor of the Bank of Japan Haruhiko Kuroda saying that the economy is still in the middle of recovering from the pandemic's impact.

According to experts, the depreciation of the yen boosts the overseas profits of Japanese multinationals, as well as the recovery of the country's once-thriving tourism industry - a major part of its economy.

Shares of Japan's global big names gained on Tuesday, with Honda Motor and Nissan rallying 2.5 percent and 2.6 percent, respectively, while heavyweight SoftBank Group rose 0.7 percent.

On the same day, Japan announced a greenlight for foreign tour groups from nearly 100 countries and regions including China starting from Friday, according to Japan's Ministry of Foreign Affairs. 

Foreign tourism arrivals to Japan plunged by more than 90 percent to 245,900 in 2020, from a record 31.9 million visitors in the previous year, almost erasing the inbound tourism economy worth of over 4.8 trillion yen ($36 billion) in 2019, according to Japan's Tourism Agency.

Depreciation trend likely
However, given the weaker expectations for the Japanese economy, experts forecast that the depreciation trend being experienced by the Japanese yen may continue, causing turmoil in Asia's foreign exchange market while adversely affecting other countries' exports, Dong Dengxin, director of the Finance and Securities Institute of the Wuhan University of Science and Technology, told the Global Times.

For example, South Korean companies that compete with their Japanese peers in sectors such as automobiles and machinery may feel the pain from a weak yen, according to Dong.
Zhang predicted that the Japanese currency may weaken to 150 yen per dollar this year if the Russia-Ukraine conflict further deteriorates. "The once-mighty currency may lose its status as a safe haven, and eventually lead to changes in the international financial system," he said.

For a long time, the yen has been used as a safe-haven currency - a currency that investors take shelters in when markets are rough, but a plunge in the currency and gloomy prospect for Japan's economic restoration may reduce its attraction, Dong said, noting that many international investors may shift to the Chinese yuan.

While data released by Japan's Cabinet Office showed on Wednesday that the economy shrank an annualized 0.5 percent in the first quarter of 2022, slightly better than the preliminary reading of a 1 percent fall. The IMF in April cut Japan's economic growth forecast for 2022 to 2.4 percent from its earlier estimate of 3.3 percent.

In contrast to a weaker yen, the Chinese currency strengthened to a month-high of 6.64 per dollar during Tuesday morning session trading, supported by a stabilizing economy as the latest epidemic outbreak has been largely wrestled under control.

Data from the Bank of Russia showed in April that Russia's yuan holdings as a percentage of total reserves jumped from 12.8 percent to 17.1 percent as of January 1, while its holdings of the Japanese yen stood at 5.9 percent, Chinese news website jiemian.com reported.