Why would the Government of Japan choose to subsidize their products through a weak yen?
The Japanese government’s weak-yen strategy was deliberately pursued as a policy of last resort to boost its economy via ‘export-led growth’ following ten years of failure to address domestic economic stagnation. Unable to stimulate normal domestic-led demand, the government reverted to its l970’s ‘Japan Inc.’ model of export-led demand, an approach also known as ‘beggar thy neighbor’ — i.e., growth at your neighbor’s expense. The weak yen makes Japanese goods less expensive to buy in overseas markets like the U.S. The policy has been very successful for Japan; since the government began intervening in currency markets in 2001, exports, led by Japan’s auto industry, have bolstered the economy, which is now growing at an annual rate of 4%.
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