Analysis-In Japan, a weaker yen may not be the blessing it once was

A gradual shift by Japan's manufacturers to offshore production means a weak yen has become less of a boon for local exporters than it was about a decade ago.

That shift means some at Japan's finance ministry, which is in charge of currency policy and known to step in to counter sharp yen rises, are now paying more attention to the downsides of a weaker currency, namely the effects of higher import costs.

Putting those concerns into focus this week, the dollar hit 115.525 yen, a level not seen since January 2017, as expectations for higher U.S. interest rates propped up the greenback and Japan's economic outlook darkened.

"A weak yen pushes up import prices, weighing on profits at companies dependent on raw materials imports and household purchasing power," Citi economist Kiichi Murashima noted. "The negative impacts of a weak yen may be larger than before given the penetration ratio of imports is on the rise."

Reversing the strong yen trend through massive monetary easing was one of the key goals of former Prime Minister Shinzo Abe's "Abenomics" stimulus policies over his eight years in office to 2020. Prime Minister Fumio Kishida is expected to follow this strategy.

Over that period, the yen lost 50% against the dollar. However, export volumes remained mostly unchanged, suggesting a weaker currency, while still beneficial for Japanese companies abroad, has not necessarily made the country's goods more attractive to foreign buyers.