Japan Considers Policies to Halt Yen's 30% Decline

Japanese officials have expressed concerns over the undervaluation of the yen and are considering policies to curb capital outflows. Katsuyama, the chairman of the Liberal Democratic Party's Financial Research Council, stated that based on economic fundamentals, the yen's fair exchange rate against the US dollar should be between 120 and 130, rather than the current low of around 150. The ruling party is currently studying measures to prevent capital outflows.

Katsuyama emphasized that the yen's exchange rate should objectively reflect Japan's economic strength, suggesting that a rate of 1 dollar to 120-130 yen is reasonable. However, he declined to comment on the specific ideal exchange rate. This week, the yen's exchange rate fell below 150 due to strong US economic data, cautious optimism about US tariff policies, and expectations that the Bank of Japan will maintain its accommodative monetary policy. The continued weakness of the yen has increased import costs, exacerbated inflationary pressures, and suppressed consumption, becoming a major concern for Japanese policymakers.

Katsuyama noted that while the US government also does not welcome excessive yen depreciation, relying solely on monetary policy adjustments is insufficient to reverse the exchange rate trend. "Although currency intervention may cause short-term fluctuations, its long-term effects are limited, and fundamental solutions must be adopted," she said. She revealed that the Liberal Democratic Party plans to expand the tax-free investment program to encourage individual investors to hold more domestic stocks, thereby curbing household capital outflows and supporting the yen.

The NISA (Nippon Individual Savings Account) system, which will be significantly expanded in 2024, allows individual investors to be exempt from stock capital gains tax. However, high-yielding overseas stocks continue to dominate the investment product rankings, and analysts believe this has exacerbated the pressure on the yen's depreciation.