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Weak yen weighs on livelihoods

Currency declines to multidecade low as structural pressures mount in Japan

By HOU JUNJIE in Tokyo | China Daily | Updated: 2026-02-27 07:35
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Customers shop at a supermarket in Yokohama, Japan, on Jan 15. Soaring food costs are a key driver of broader inflation. AKIO KON/GETTY IMAGES

The Japanese yen's purchasing power continues to decline amid the country's prolonged economic stagnation, with its real effective exchange rate falling to a multidecade low. Experts say the slide reflects deep-rooted structural challenges and is weighing on household finances, corporate import costs and consumer confidence.

Figures released by the Bank for International Settlements on Feb 20 showed that the yen's real effective exchange rate stood at 67.73 in January, the lowest level since Japan adopted a floating exchange rate system in 1973. The index is widely regarded as a key gauge of a currency's real purchasing power and international competitiveness. When it declines, purchasing power weakens accordingly.

Nikkei Asia reported that the yen's overall strength hit a 53-year low last month against major currencies, falling to roughly one-third of its 1995 peak, as Japan's prolonged economic weakness continues to erode the currency's purchasing power.

The yen strengthened past 156 per dollar on Thursday, snapping a two-day slide as hawkish signals from the Bank of Japan supported domestic yields.

Yangchoon Kwak, a senior professor at Rikkyo University's College of Economics, told China Daily that the decline goes beyond short-term currency fluctuations. Instead, it reflects a combination of structural factors, including weak long-term growth, a widening interest rate gap between Japan and the United States, heavy reliance on energy and resource imports, as well as demographic decline and rising fiscal burdens.

Together, these factors have exerted sustained pressure on the yen over the medium to long term, Kwak said.

The weaker currency has driven up import costs, feeding into domestic inflation in a country heavily dependent on imported food and energy.

Data released last month by the Ministry of Internal Affairs and Communications showed that the national average consumer price index for 2025, excluding fresh food, stood at 111.2, up 3.1 percent year-on-year and marking the fourth consecutive increase. Of the 522 items surveyed, 440 recorded price rises. Rice prices jumped 67.2 percent, while egg prices increased 10.3 percent.

Meanwhile, income growth has failed to keep pace with rising prices. According to the Ministry of Health, Labour and Welfare's Monthly Labour Survey released earlier this month, real wages, adjusted for inflation, fell 1.3 percent year-on-year in 2025, marking the fourth consecutive decline.

Kwak said rising prices for essentials such as food, electricity and gasoline, coupled with sluggish wage growth, have eroded real incomes and weakened household purchasing power.

Cost pressures are also spreading across other sectors.

McDonald's Japan said on Tuesday that it would raise prices for about 60 percent of its products. East Japan Railway will increase fares in March, with an average hike of about 7.1 percent.

According to real estate company At Home, rents for 50 to 70-square-meter family apartments in Tokyo's 23 wards have risen by 63,000 yen ($400) over the past five years. As consumption, transportation and housing costs climb, "high prices" have become a trending topic on Japan's Yahoo portal.

Stagflation concerns

Kwak said if prices continue to outpace wage growth, public anxiety over the economic outlook could intensify, further weighing on consumer confidence and heightening concerns about a stagflation-like situation.

Higher overseas travel and import costs have prompted households to increase savings and rein in spending, he added.

To ease the burden, the government has abolished the provisional gasoline tax rate and introduced winter subsidies for electricity and gas bills, reducing household expenses by about 7,300 yen.

In the House of Representatives election earlier this month, major parties proposed cutting the consumption tax.

However, Takahide Kiuchi, executive economist at Nomura Research Institute, said even if the tax is lowered, rising prices could offset the benefits.

Regarding proposals by Prime Minister Sanae Takaichi for proactive fiscal and growth-oriented investment policies, Kwak said such measures may provide short-term stimulus.

However, if fiscal expansion continues alongside a prolonged low-interest-rate environment, it could add further downward pressure on the yen and push up living costs through imported inflation.

Overall, the yen's trajectory has become closely intertwined with mounting pressures on household finances, leaving Japan with the delicate task of balancing growth, fiscal sustainability and price stability, Kwak said.

Meanwhile, Takaichi drew criticism on Wednesday after admitting to distributing congratulatory gifts worth 30,000 yen to ruling Liberal Democratic Party lawmakers who won seats in the recent election.

"The mindset of handing out gifts and the sense of how to use money reflect the old culture of the LDP, which we cannot overlook," said Junya Ogawa, leader of the Centrist Reform Alliance.

The revelation surfaced amid lingering public distrust over money and politics, particularly toward the LDP, after many of its lawmakers were implicated in a slush fund scandal that came to light in late 2023.

Xinhua contributed to this story.

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