It is very strange that the Bank of Japan has not intervened in the foreign exchange market to avert the Yen's relentless and dangerous appreciation.
Japanese exports in December tumbled a shocking 35 percent from a year earlier. Widely acknowledged industrial leaders Toyota (NYSE:TM) and Sony (NYSE:SNE) reported first time losses in many years. In one recent development, Sony Corporation would cut 8,000 of its 185,000 jobs around the world and close five or six plants. An additional 8,000 temporary workers will be trimmed.
The appreciation of the Yen against a basket of currencies, according to a measure as reported here, amounted to over 35% since January 1, 2008. Such appreciation would eliminate profits across a spectrum of export-oriented industries for any country given today's competitive markets and low profit margins. But Japan has to export in order to import. The exports plunge therefore directly hurts exports to Japan from all over the world. In addition, the global job losses due to the strong Yen are also weakening the global economy.
In order to revive its competitiveness, Japan has to swallow deflation of at least 10%, and that would be just crushing for its economy. Alternatively, the easier way is to sell Yen massively in the foreign exchange market, which cannot do any harm unless the Yen depreciates by more than 20% beyond today's levels. It is truly amazing that the Bank of Japan and the industrial nations around the world sit idle while watching the unfolding of these damaging events.