Economists should not blame the Bank of Japan’s monetary policies for the yen’s declining purchasing power. It is flatlining productivity in tradable sectors and stagnant real wages that explain the arrival of Cheap Japan.
TOKYO – Every month, the Bank for International Settlements calculates and publishes the real and nominal effective exchange rates for major currencies. The most recent data, released in mid-February, contained a shock for Japan. They show that the yen’s real effective exchange rate (REER, representing roughly the purchasing power of the currency) is now as low as it was in the early 1970s, when the yen was first floated following the collapse of the Bretton Woods and Smithsonian systems of fixed exchange rates.
TOKYO – Every month, the Bank for International Settlements calculates and publishes the real and nominal effective exchange rates for major currencies. The most recent data, released in mid-February, contained a shock for Japan. They show that the yen’s real effective exchange rate (REER, representing roughly the purchasing power of the currency) is now as low as it was in the early 1970s, when the yen was first floated following the collapse of the Bretton Woods and Smithsonian systems of fixed exchange rates.