how a lower currency value isn’t a sign of poor economy like in Japan?
In: Economics
Currencies aren’t inherent weaker or stronger. They are arbitrary. The actual numbers don’t mean anything.
What matters is how they change overtime. So a currency that drops by 15% vs major partners compared to last year is probably a bad sign. For a currency to drop that much shows a reduction in demand for goods and services from that country.
But here’s the thing. That is at least partially a self correcting problem. Your currency drops, now suddenly its cheaper for people importing your goods in their currency to buy your stuff, and it’s cheaper for them to come to your country for vacations and so on. Which will increase demand for your currency and raise its value.
Now, you absolutely can after more advanced effects. Inflation can be different in each country, so maybe inflation is 15% in country A and 0% in country B, but if wages are rising at least to match inflation in country A, the people there aren’t getting poorer as such, but any money that have that isn’t invested is being eaten away. It’s not a sign that the economy is weak or strong that you have slightly different inflation to a partner country, the same applies to 0.15 or 1.5%, as well as it does 15%. 15% would be a lot of inflation though, and that is usually a sign of some other issue.
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