Why does Japan want inflation if their Yen is already growing weaker?
In: Economics
Inflation is different from a currency’s strength against other currencies. Inflation is a change in the buying power of the currency – particularly, the buying power for goods or services within that country.
This is an important different because even taking into account other currencies different areas can have very different costs. An American visiting Vietnam, for example, could buy a very good dinner for just over $8 American dollars. That doesn’t mean the dinner is on par with what $8 would buy in American (not much more than a couple items at a fast food restaurant), but rather that the cost of living in Vietnam is simply much cheaper than America.
For Japan, their currency is weakening compared to the American dollar, but that’s not related to wanting inflation in costs within their country. The reasons for wanting inflation are relatively complex but largely has to do with encouraging people to spend money – an country’s economy only exists because people spend money, and if the economy slows too much then you can run into a depression where no one has a job and because no one has a job businesses don’t have any customers, and because businesses don’t have any customers no one has a job.
Japan’s economy has been stagnating for a very long time, and teetering on the line of potentially falling into a depression if it slows much more than it has. They want to create inflation to try to prevent that from happening.
Latest Answers