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What would happen in the United States and Japan if Japan significantly devalues the Yen?

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kslivesfordance | Student, Grade 12 | eNoter

Posted April 30, 2013 at 10:39 PM via web

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What would happen in the United States and Japan if Japan significantly devalues the Yen?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 30, 2013 at 11:02 PM (Answer #1)

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If Japan were to devalue the yen significantly, that would mean that the yen would become much weaker when compared to the dollar.  Economically speaking, this would make it easier for Americans to buy Japanese exports and harder for Japanese to buy imports from the US or from any other country.

When international trade transactions are made, a company in the importing country must buy the exporting country’s currency.  The importing company uses that currency to buy the goods from the exporting firm.  What this means is that trade is very much influenced by relative currency values.

If the yen were to weaken, it would cost a Japanese firm more yen to buy each dollar that it needed to use to pay for goods made in America.  Conversely, it would cost much less for an American firm to buy the yen that it needs to use to pay for goods made in Japan.  This would meant that it would be easier for Japan to export and harder for the US to export to Japan.

This would benefit Japanese companies and hurt American companies.  By contrast, it would help American consumers (they could buy Japanese goods more cheaply) and it would hurt Japanese consumers (American goods would cost more than they had before).

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