After falling by almost a fifth since Japanese Prime Minister Shinzo Abe came to power just over a year ago, the yen is in a sweet spot for the economy.
Companies have roared back with bumper profits as the currency’s slide to five-year lows made exports more competitive and while import prices, notably for fuel, have climbed, importers are benefiting too.
But should the yen keep falling, the drawbacks of higher import prices and possible anger from Washington and other trading powers could start to outweigh the benefits of a weaker currency. Those benefits start shifting to drawbacks if the yen slips to 120-130 per dollar from its current Goldilocks’ range of 100-110.
The yen may weaken further as the U.S. Federal Reserve slowly tightens its dollar-liquidity spigot while expectations grow that the Bank of Japan will increase its own flood of money into the economy to offset a sales-tax increase in just over two months, say Japanese executives, policymakers and investors.
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