Europeans who seek measures against the weakness of the yen should broaden their view of chronic problems in Japan - to avoid punishing Japanese consumers and stalling economic growth in the region, which benefits from a weak yen.
The currency has fallen 11 per cent against the euro in the past year. Finance ministers from Germany, France and Italy said last week that this decline would be discussed at a Group of Seven meeting between central bankers and finance ministers in Essen, Germany, at the weekend.
But shoppers in Japan - where increased domestic consumer demand is needed to bolster export-led growth - have bigger worries. Despite rising corporate profits, the Japanese remain mired in stagnant wages, abnormally high living costs and anxiety about higher taxes, amid a declining birth rate and shrinking workforce. Household spending dropped every month last year, while the Labour Ministry said wages - which shrivelled by 10 per cent between 1997 and 2005 - rose a mere 0.2 per cent. This situation is not in the best interests of Europe, China - or any country that needs Japanese buyers, visitors and investors. A downturn in Japan could dampen enthusiasm in the region and siphon money out of China's booming - and fragile - markets.
To avoid nipping Japan's economic spring in the bud, finance officials should consider the context: while the yen might appear weak, history indicates that it could slide even further.
Many analysts blame current abnormalities on the 1985 Plaza Accord. That was when major powers intervened in currency markets to slow Japan's export juggernaut and open the nation to cheaper western imports. From 1986 to 1991, the yen doubled in value and living costs in Japan climbed to absurd levels.
Despite years without inflation, many Japanese still feel they're paying too much for what they get. Consumer apathy impedes the Bank of Japan from raising interest rates, which are well below the global norm. Economics and Fiscal Policy Minister Hiroko Ota and others have pressured bank officials to move slowly, or not at all, on tightening the money supply. 'Japan is in an extremely crucial period of getting out of deflation, and consumption is weak,' said Ms Ota. 'Low interest rates need correcting eventually, but what is important is the timing.' The bank's interest rate rise last July has been blamed for contributing to a slowdown in the July-September quarter.
