2014.09.0906:11:48UTC+00Japan recovery boosted by weakened yen

Japan’s Prime Minister has announced that the weakening of the yen will help the country recover from its largest economic contraction in five years.

According to Koichi Hamada, one of Prime Minister Shinzo Abe’s advisers in designing the administration’s reflationary policies, “The weak yen benefits the economy by increasing corporate profits, capital spending, employment and tax revenues even if it hasn’t boosted exports. It’s a positive for Japan’s economy.”

The sentiment gives support to comments made by Bank of Japan (BoJ) governor Haruhiko Kuroda last week regarding the positive impact of a weaker yen. Shortly after the statement, the currency fell to its lowest in six years to bring the yen’s decline under Abe to nearly 19%. Hamada expressed his understanding of the BoJ’s decision not to boost the yen due to the role it could play as a tailwind for the economy.

The government raised the nationwide sales tax to 8% on April 1st which caused consumer and business spending to fall drastically and contributed to a 7.1% decline in Japan’s gross domestic product in the second quarter.

While the cost of imports have risen including prices of fossil fuels from overseas, manufacturers have been one of the beneficiaries of the yen’s downward movement. Results of the BoJ’s Tankan survey in July which showed that he business plans of large manufacturers were made based on an average exchange rate of 100.18 for one US dollar.

The CEO of Japan Bank for International Cooperation, Hiroshi Watanabe, however, says that more industries will start to be negatively affected should the yen’s value depreciate further.