Are imports soaring due to the weak yen? Designing an explanation for that
This is an installment of "Elementary Economics for You," which occasionally appears in my notes 💴
The keyword "soaring prices" is everywhere these days 😵💫
Among them, if it is a product that imports raw materials / or simply an imported product , you have surely heard or seen the argument/explanation that the recent "weak yen" is contributing to/fueling this, right?
But,
does that explanation make sense to you?
Really?
Are there no points that bother you?
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I will not touch upon secondary factors in this article, such as the rising fuel costs required for the process (raising animals/plants, etc.) even for domestic primary products 🙅🏻♂️
Here, I will simply develop the topic as "imported goods" and the fact that they are "becoming expensive" 📖
How do news anchors, commentators, and the media explain the "reason" or "mechanism" behind this? 🎤
＜Example＞
Previously, when importing a 100-dollar item, you paid 12,000 yen, but due to the exchange rate fluctuation of a weak yen (1 dollar = 120 yen ⇒ 1 dollar = 150 yen), it became 15,000 yen...
⇒⇒⇒You can understand up to this point, right? 🤣
The amount of yen required to pay the same price has increased 💧
What follows immediately here is the formula that "a weak yen is disadvantageous for imports." The scenario where prices effectively rise at the retail level in Japan.
Furthermore,
on the other hand, it is also said that "a weak yen is advantageous for exports"
＜Example＞
If you sell it abroad for 100 dollars, what used to be 12,000 yen when converted to yen becomes 15,000 yen ⤴
⇒⇒⇒Yes, that is how it is explained, right? Do you understand that too 👌?
Depending on whether Japan's trade balance is in deficit or surplus, one might wonder about the degree of impact of exchange rate fluctuations within the scope (depth) mentioned above regarding 【whether it will be a positive or negative factor overall】 , right? 🤔
For trading companies that do both imports and exports (ignoring for a moment the element that even if it is an export product, its raw materials were imported at a high price), ordinary people can imagine that the profit from exports is huge 🙆. Although I don't feel any direct benefits.
※Those who think deeply might say, "Since they are making a large profit by selling abroad, they will allocate products there and reduce the supply for the domestic market = won't that further fuel the rise in domestic prices due to undersupply?"
In the end, perhaps the overall "balance" is not bad, feeling like a plus-minus even? 🤑
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Let's get back to the topic 📖
Regarding the aforementioned <example> of imports. The idea that 'a weak yen is disadvantageous for imports'—where 10,000 yen becomes 15,000 yen—the level of understanding of explanations/trivia requirements for us ordinary people—doesn't that feel a bit crude to some of you?
I cannot help but feel that the explanation is being completed while leaving out one crucial element/requirement.😫
The premise for that diagram to hold true is that 'the settlement currency for trade/international transactions = the quoted price is in foreign currency.'
If it were a sales contract based on Japanese yen, the yen-denominated figure would not change for the importer regardless of how the exchange rate fluctuates after all.
To put it extremely, there is also the point that 'we are suffering from a weak yen because we bear exchange rate risk due to the quoted price not being in Japanese yen, and the fact that this point is not "improved" is also a root cause of soaring prices,' yet as mentioned earlier, it seems this is not touched upon at all in [explanations for the general public]. I feel frustrated by that.
If it were a global business custom that 'the seller's currency is applied,' then the position/situation would be reversed between exports and imports, and it would no longer be the case that 'a weak yen is advantageous for exports from Japan' as mentioned earlier.
*Basically, it is decided individually through mutual contracts. There are [trends] by industry. Globally, "weak = low reliability" currencies are difficult to apply.
A point that can be inferred from that area. It should be possible to have an explanation that includes the view that 'the fact that there is a lot of "foreign currency denomination" in both exports and imports might be the root of the hardship,' but I am concerned about the reality where it is finished with just 'See, it gets expensive when the yen is weak, right?' without any mention of that requirement, and it is occupied by the reaction of the general public who are convinced, saying 'I see!'
I want to have the habit of 'thinking' one step further.💡
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