The Yen Depreciation and its Implications for East and Southeast Asia

Abstract

As long as the yen's depreciation relative to other major cur-rencies remains less than the recent depreciations of other regional currencies, the effects on trade may be relatively mild. Moreover, the brief analysis above indicates that the yen depreciation will be likely to have greater trade-related (negative) effects on the economies of the Republic of Korea and Taipei,China, and lesser effects on the ASEAN-4. The decline in Japan's real effective exchange rate has improved Japan's competitiveness and this trend may continue. As far as new regional FDI from Japan is concerned, a downturn can be expected. However, as discussed earlier, this is more likely to reflect weakness in domestic demand both in Japan as well as the economies that host FDI from Japan. Additionally, the fact that the regional share of yen-denominated official reserves is small sug¬gests that an erosion of the value of these reserves due to the yen depreciation is likely to be small, although there may be variations across economies.