With an nationwide election approaching in Japan (February 8, 2026), there was numerous dialogue in regards to the so-called ‘weak yen’ and whether or not the Financial institution of Japan needs to be intervening to handle the worth of the forex on worldwide markets. PM Takaichi has been quoted as saying that the weak yen is sweet for Japanese exports and has offset a number of the damaging impacts on key sectors in Japan, together with the car trade. She additionally mentioned that the federal government would goal to encourage an financial construction that would face up to shifts within the forex’s worth, largely by encouraging home funding. The yen depreciation is one other instance of the way in which mainstream economists distort the controversy. They argue that the Financial institution of Japan needs to be rising rates of interest additional to shore up the yen. Beforehand, they pressured the federal government into making a pension fund funding automobile to invest in monetary markets to make sure the fundamental pension system doesn’t run out of cash. These two issues are linked however not in ways in which the mainstream public debate construes. It seems that pension myths, are immediately chargeable for the evolution of the yen. This weblog submit explains why.
Yen depreciation
In January 2012, the USD/yen parity stood at 76.3 and by December 2025, the worth was 155.9, a depreciation of 104 per cent.
The depreciation within the yen towards the US greenback for the reason that early aftermath of the GFC has are available in two levels.
First, between January 2012 and July 2015, the yen depreciated by 62.8 per cent.
It then firmed a bit of (gaining 14.2 per cent in worth) earlier than resuming its downward path.
Second, since April 2020, the yen has depreciated by 46.3 per cent.
The next graphic reveals the historical past of this parity since January 1975.
There are winners and losers from the yen’s actions.
Clearly, the exporters (together with the tourism trade) will get a lift as a result of all items and providers quoted in yen develop into cheaper for patrons utilizing overseas forex.
For instance, the rising cost-of-living for Japanese households after they go to native supermarkets isn’t felt as a lot by vacationers who’ve elevated yen buying energy because of the yen depreciation.
That was very obvious after I was working in Japan once more final yr – it was clear that costs of all meals gadgets had risen in our native grocery store however after I did the conversion again into Australian {dollars}, the shift in buying energy was hardly noticeable to me.
The Japanese customers are the losers – all imported items and providers quoted in foreign currency echange develop into dearer when expressed in yen because of the depreciation.
The import worth rises have been feeding (considerably) into the home CPI charge of progress and the mainstream obsession with rising rates of interest has been stimulated because of this.
The Ministry of Finance has additionally been telling us that they are going to be sure that the yen doesn’t depreciate an excessive amount of – which is code for the Financial institution of Japan intervening in overseas change markets by shopping for up yen and promoting overseas forex holdings.
Mainstream economists and observers have as soon as once more seen blue and referred to as it purple.
They’re decoding the rising yields on long-term Japanese authorities bonds and the depreciation within the yen as being proof that the ‘markets’ (that amorphous collective utilized in scaremongering narratives) have solid a damaging judgement on the fiscal place of the federal government.
As I famous in my current weblog submit – Japan goes to an election accompanied by a really confused financial debate (January 29, 2026) – the rising bond yields have little to do with fiscal coverage settings and every little thing to do with the so-called ‘normalisation’ of financial coverage being performed by the Financial institution of Japan in the intervening time.
It is usually obvious that one of many causes the yen has been depreciating since 2012 has every little thing to do with confused considering amongst fiscal authorities.
Which is what this weblog submit is about.
The stupidity of neoliberalism
There are numerous examples of poor selections ensuing from poor beginning assumptions.
For instance, take into consideration outsourcing of presidency providers.
1. Authorities adopts the belief (pushed by huge stress from vested pursuits within the non-public sector) that it might now not afford to offer supply of key providers inside home.
2. Motion – outsource to a personal contractor.
3. The non-public contractor must make a revenue (that the federal government supply didn’t must make) and because of this seems at methods of decreasing the scope and high quality of the service and/or climbing the worth to the top consumer.
4. End result – high quality of service declines, employment is misplaced, and costs rise.
5. Generally – the decline is so catastrophic that the federal government has to take again management of the supply.
There are such a lot of examples of any such sequence for the reason that neoliberal privatisation-oursourcing-userpays insanity started within the Nineteen Eighties.
Within the context of this weblog submit take into consideration authorities supply of aged pensions to its inhabitants.
Because the neoliberal fictions about authorities monetary capability grew to become dominant, one of many focal factors within the coverage house grew to become the viability of presidency pension programs.
The mainstream declare was that governments wouldn’t be capable to afford to pay pensions as populations age as a result of they’d ‘run out of cash’.
In 2001, the Japanese authorities created the – 年金積立金管理運用独立行政法人 (Authorities Pension Funding Fund) – nevertheless it wasn’t till 2006 that its organisation was consolidated right into a functioning entity.
It’s the ‘largest pool of retirement financial savings on this planet’ (Supply) and includes the federal government as a speculator in monetary markets.
Over time it has diversified its funding portfolio by means of using so-called ‘exterior asset administration establishments’ – that are simply all the standard suspects (main funding banks and hedge funds).
So a number of the funding returns are hived off by these parasitic establishments courtesy of the federal government.
The GPIF says (translated) it:
… shall handle and make investments the Reserve Funds of the Authorities Pension Plans entrusted by the Minister of Well being, Labour and Welfare, in accordance with the provisions of the Staff’ Pension Insurance coverage Act (Legislation No.115 of 1954) and the Nationwide Pension Act (Legislation No.141 of 1959), and shall contribute to the monetary stability of each Plans by remitting income of funding to the Particular Accounts for the Authorities Pension Plans.
Which implies that it buys and sells monetary merchandise in an effort to construct its asset construction to offer surety for pension recipients in Japan.
Its portfolio is roughly divided between bonds and shares (equities):
1. Bonds account for 50.2 per cent of complete belongings.
2. Shares account for 49.8 per cent of complete belongings.
It makes income and losses as do all speculative ventures in monetary markets.
The Japanese – Nationwide Pension System – is a three-tier system – and I wrote an in depth evaluation of it on this weblog submit – The intersection of neoliberalism and fictional mainstream economics is damaging a era of Japanese employees (Could 8, 2025).
The welfare state in Japan is isn’t notably beneficiant and it’s assumed that a lot of the outdated age help can be offered by households.
Whereas the federal government welfare help is rising in scope and magnitude, it stays that Japan is within the decrease finish of OECD international locations when it comes to welfare spending.
The system has three ranges – supported by authorities and firms.
1. Primary pension or Kokumin Nenkin (国民年金, 老齢基礎年金) – which offers “minimal advantages” to all residents.
To be eligible for the complete pension fee, a employee has to contribute at the moment ¥17,510 monthly for 480 months throughout their working life (40 years x 12 months).
The complete annual fundamental pension is at the moment ¥779,300, which could be very low, particularly when the recipient could not personal their very own housing.
A professional-rata pension may be paid if the contribution has been for at the least 120 months.
2. High-up or Fuka nenkin (付加年金) pension element – earnings based mostly as a proportion.
3. Staff’ Pension or Kōsei Nenkin (厚生年金) – firm pensions various in protection and generosity based mostly on wage and contributions.
Many Japanese retirees are depending on the Primary authorities pension.
The influence of the mainstream financial fictions on the operation of the pension system has been important.
The federal government sought methods to chop the quantity of advantages paid and squeeze eligibility standards (pro-rate guidelines and many others).
The argument was that with the ageing society (particularly since elevated participation of girls of working age has diminished the start charge), the Japanese authorities wouldn’t be capable to afford to cowl the pension entitlements because the proportion of employees depending on it rose relative to these contributing to it (a rising dependency ratio).
It was determined that to make sure there was sufficient ‘yen’ obtainable to offer pension advantages over the long-term that the reserves within the system (through the contributory scheme) needs to be invested in ‘diversified markets’.
The choice was to simply maintain them in ‘authorities accounts’, which have been thought of to offer inferior returns.
The logic was that the GPIF must generate monetary returns in an effort to stay solvent within the long-term.
So take into consideration the sequence:
1. Employees need to sacrifice a few of their earnings – over a interval the place wages progress has been very low and actual wages have been eroded to contribute to a ‘fund’.
2. The ‘fund’ then makes use of the employees’ contributions to invest in monetary markets.
3. And, alongside the way in which enriches the coffers of assorted world hedge funds and funding banks.
All as a result of the parable that the Japanese authorities, which points the forex, would run out of that forex and the aged pension system would collapse.
Poor beginning assumptions resulting in worse outcomes.
However the relevance of all this to the depreciating yen story is as follows.
Most commentators assume that it’s the accountability of the Financial institution of Japan to do one thing in regards to the yen depreciation.
It was argued that the Financial institution ought to enhance its rate of interest extra rapidly to draw funds into Japan and stabilise and strengthen the yen.
This method simply displays the obsession with financial coverage that the mainstream economists have.
They assume changes in rates of interest can cope with many macroeconomic points, together with change charge depreciation.
After all, after they make this suggestion in that context, they by no means point out the damaging penalties of the rate of interest rises – for instance, additional straining low-paid Japanese mortgage holders.
In addition they don’t point out that the non-public financial institution shareholders get a bonus as financial institution income rise as rates of interest rise.
The issue for this declare is that there’s little or no correspondence between the rates of interest that the Financial institution of Japan units and change charge actions.
The next graph reveals the USD/yen parity (as above) and on the right-hand axis is the Financial institution of Japan’s fundamental name charge over the identical interval.
There isn’t any clear (mainstream alleged) relationship.
Certainly, the yen has depreciated though the Financial institution of Japan has elevated its coverage charge.
A big issue driving the depreciation since 2012 has been the funding behaviour of the GPIF.
The next graph reveals the evolution of the asset portfolio (investments) of the GPIF (in billions of yen) on the finish of every fiscal yr (finish of March) from 2017.
The GPIF has shifted its funding portfolio considerably in direction of overseas bonds and shares over this time (the development began submit 2010).
1. In 2015, home bonds accounted for 41.7 per cent of complete portfolio belongings, overseas bonds 13.3 per cent, home shares 23.1 per cent, and overseas shares 21.9 per cent.
2. In 2025, the proportions have been home bonds 24.2 per cent, overseas bonds 26 per cent, home shares 25.2 per cent, and overseas shares 24.6 per cent.
Query: what has this to do with the yen?
Reply: the shift to overseas investments in pursuit of upper returns has led to a big promoting of yen by the GPIF to buy the overseas belongings.
End result: yen depreciates.
So if the federal government was actually involved with the yen depreciation it may instruct (require) the GPIF to shift its funding portfolio again in direction of home belongings.
It may additionally argue (unnecessarily) that the returns on home belongings have been now greater because of the current Financial institution of Japan rate of interest hikes.
However the level is that the place to begin – authorities will run out of cash fable – has led to important institutional equipment being established (GPIF) that, in flip, then does issues which have penalties elsewhere within the economic system (change charge depreciation), that, in flip, then leads mainstream economists to demand additional (pointless) coverage modifications (rate of interest rises).
It’s a sequence of poor assumptions resulting in poor coverage decisions.
And all of it’s pointless.
Conclusion
One other instance of the tortured world that mainstream macroeconomics delivers.
That’s sufficient for in the present day!
(c) Copyright 2026 William Mitchell. All Rights Reserved.
