Yen weakness helps to stabilise current account

Investors tend to focus on visible trade when analysing the impact of the weak yen on the current account. The impact on investment income tends to be ignored, even though it is more immediate. Since Japan’s income on its large stock of foreign assets is four times larger than payments on its foreign liabilities, a weaker exchange rate boosts the surplus in the income balance. A further depreciation of the yen in coming months would thus help to offset ongoing weakness in the trade balance.