Impact of the USD-Yen exchange rate on research in Japan
In recent months, the Japanese Yen (JPY) has fallen greatly in value against the United States Dollar (USD)1. As one of the world’s most-traded currency pairs, fluctuations in USD-JPY have profound implications on global trade. As a financially demanding endeavor, research is also deeply affected by these changes. Here, I review the impact of the exchange rate on research in Japan and the long-term prospects of a weakened yen.
History of USD-JPY value
Following the Second World War, the United States and Japan became vital trading partners with deeply integrated markets. Following the collapse of the yen in the 1940s, the JPY was pegged at 360 JPY:1 USD2, providing much-needed stability to the Japanese economy. When the Bretton Woods system ended, Japan continued to benefit from their devalued currency, allowing Japanese companies to sell their goods to the United States at very competitive prices. This led to companies like Toyota and Sony being able to offer affordable but high-quality products and make huge profits. The resulting trade balance deficit between the United States and Japan prompted action from the Reagan administration, who negotiated the Plaza Accord to depreciate the USD in relation to other currencies, including JPY3. The increased JPY value greatly boosted domestic consumption and real estate investment, eventually contributing to the 1980s asset bubble that led to Japan’s “lost decade4.”
Today, JPY enjoys a reputation as a “safe haven” currency5 that has maintained value well in times of uncertainty, but challenges to the Japanese economy have led to large swings in value.
Impact of JPY price fluctuations on Japan
The value of the yen is so important to public life in Japan that the terms enyasu (円安) and endaka (円高) are often used in conversation, respectively referring to depreciation and appreciation of JPY against USD.
Japan is an advanced economy that exports large amounts of consumer and industrial products, but it also relies on imports for fuel, food, and raw materials6. This means that an appreciating yen makes imports cheaper while making it harder to export competitively priced products, and a weakening yen has the opposite effect. Overall, there are many winners and losers whenever the yen fluctuates in value.
Impacts on research in Japan
Just as the yen’s depreciation is not uniformly good or bad for the Japanese economy, it isn’t all positive or negative for research. In some cases, a weakened yen offers complementary advantages and disadvantages; in others, it’s hard to see an upside.
Increased utility costs
Research is an energy-intensive pursuit. Some items like autoclaves, and high-performance computers may demand several kilowatts for each hour of operation, and an ultra-low temperature freezer can demand 20 kWh of power each day,7 enough to power an efficient family home.
Not just the weak yen, but also the ongoing conflict in Ukraine, have greatly increased the costs of oil and gas imports that power Japan’s chemical industry and power grid. This compounding effect is leading to precipitous rises in electricity costs, with major suppliers like TEPCO requesting to increase their household electricity prices by a third to make up for the hits to their profits8.
Of course, laboratories cannot simply shut off electricity, and basic measures to reduce electricity costs like changing from fluorescent to LED bulbs or Cool Biz9 initiatives would amount to little relief. This necessarily means that institutions must cut costs in other ways, which could affect plans to invest in new research projects.
Import/export of scientific instruments and reagents
Japan is a major exporter of reagents and high-tech equipment, including analytical instruments10, optics, and precision machinery. A weak yen can make these more attractive to overseas buyers, who are happy to purchase Japanese products due to their reputation for quality11.
However, Japan relies greatly on imports to create the aforementioned high-tech products, including semiconductors from Taiwan and Korea, lenses from Germany, and rare earths from China and Australia12. If Japan faces too much international competition, the relative advantage gained from exporting with a weak yen may be erased by increased material costs.
While Japan produces many instruments and reagents, it is by no means self-sufficient in this respect. Japan is a net importer of reagents13. More generally, modern researchers are highly dependent on the global supply chain. As one example, antibodies are commonly used for detection in a myriad of research applications. As antibodies need to be highly specific, companies supplying antibodies such as Abcam have tens of thousands of antibody products in their catalogs; no single domestic company can produce all the necessary antibodies to meet the needs of Japan’s researchers. Thus, a depreciated yen may create a net reduction in the purchasing power of many laboratories.
Overseas funding and collaboration
A weak yen also increases the benefits gained from incoming international funding. Overseas investors, particularly from the USA, can stretch their dollars further, which can make Japan somewhat more attractive in terms of returns on invested capital. Despite a recent decrease in overseas investment, many foreign partners are planning to expand their investments14.
Japan has also invested considerably into overseas ventures; a weakening yen can improve Japan’s already-huge financial returns on existing ventures15. Likewise, this can also be expected to put a pause on future plans to invest abroad.
Incoming and outbound researchers
Japan has a growing population of researchers from overseas, and Japan has courted these researchers with opportunities aimed at foreigners like the RONPAKU program16. I personally have researcher acquaintances here in Japan who come from every continent save for Antarctica. Unfortunately, a depreciating yen makes Japan less attractive to overseas researchers. When the yen’s value slides, these researchers will make less following conversion to their home currency. Since many researchers have large student debts to pay off or families to support, a weakening yen might lead some to reconsider taking a position in Japan. Naturally, this also means that some Japanese researchers may be more open to taking positions abroad, particularly in the USA, which may contribute to Japan’s shortage of researchers17.
Conferences
While digital or hybrid conferences are growing18, the in-person conference is going to stick around. Unfortunately, a weak yen and the associated fuel price increases will likely decrease the frequency and distance of travel for Japanese researchers.
Of course, Japan has excellent infrastructure for visitors and may become more attractive as a host for conferences, which have increased in recent years19. Many inbound business or research travelers already greatly look forward to trips to Japan, and being able to stay in a place like Tokyo or Osaka cheaply will make it all the better.
Cost of services
A weak yen is likely to have negative effects on publishing prospects, particularly in open access (OA) journals. OA is growing, but article-processing charges (APCs) remain a major expense. Many journals levy their APCs in USD or EUR, which may discourage Japanese researchers from publishing in international gold OA journals. This could lead more researchers to investigate other avenues, including domestic publishing.
Similarly, this will also increase the prices of institutional subscriptions. Considering that many Japanese universities are struggling to compete in the global market20, some libraries may be forced to make tough decisions about what publications they can offer to cut costs.
Finally, a weakened yen is increasing the cost of services offered by overseas companies that support research, such as licenses for software, translation, and editing. As one example, Graphpad Prism, a popular statistical software package used in research, recently had a price increase with the weakened yen being blamed as the reason for this change21.
Prospects
Reliably predicting future price trends in currencies is not easy. However, general sentiment is that the USD/JPY pair will trade in the current region for some time. Presuming that recent trends continue, it will be worthwhile for Japanese researchers and companies to focus on exporting high-quality products, investing domestically, and courting overseas investors. Japanese researchers have a great track record of making world-changing innovations, and proper investment and maneuvering can help Japan keep its edge despite the increased competition. In the meantime, domestic research institutions may face tough decisions with how to cut costs to overcome decreased purchasing power or budget cuts.
References
1. Why the Yen Is So Weak and What That Means for Japan - The Washington Post. https://www.washingtonpost.com/business/why-the-yen-is-so-weak-and-what-that-means-for-japan/2022/09/04/323c2240-2ccd-11ed-bcc6-0874b26ae296_story.html.
2. TIMES, S. to T. N. Y. JAPANESE YEN PEGGED AT RATE OF 360 FOR $1. The New York Times (1949).
3. Frankel, J. The Plaza Accord, 30 Years Later. w21813 http://www.nber.org/papers/w21813.pdf (2015) doi:10.3386/w21813.
4. Yoshino, N. & Taghizadeh-Hesary, F. Japan’s Lost Decade: Causes and Remedies. in Japan’s Lost Decade: Lessons for Asian Economies (eds. Yoshino, N. & Taghizadeh-Hesary, F.) 1–33 (Springer, 2017). doi:10.1007/978-981-10-5021-3_1.
5. Botman, D., Filho, I. de C. & Lam, W. R. The Curious Case of the Yen as a Safe Haven Currency: A Forensic Analysis.
6. Weak yen pushes up Japan’s wholesale import costs at record pace | The Japan Times. https://www.japantimes.co.jp/news/2022/06/10/business/wholesale-inflation-import-prices/.
7. Purchasing Energy-Efficient Laboratory-Grade Refrigerators and Freezers. Energy.gov https://www.energy.gov/femp/purchasing-energy-efficient-laboratory-grade-refrigerators-and-freezers.
8. TEPCO seeks to raise household power prices by 30% from June | Reuters. https://www.reuters.com/business/energy/tepco-seeks-raise-household-power-prices-by-30-june-2023-01-23/.
9. Shimbun, T. Y. Kishida Cabinet Kicks Off Cool Biz Season in Colorful Okinawan Shirts. https://japannews.yomiuri.co.jp/society/general-news/20230606-114455/ (2023).
10. 7. Japan’s Analytical and Scientific Instruments Market. https://www.trade.gov/market-intelligence/japans-analytical-and-scientific-instruments-market.
11. Japanese brands are reliable, not so cool - Nikkei Asia. https://asia.nikkei.com/Business/Japanese-brands-are-reliable-not-so-cool.
12. Japan (JPN) Exports, Imports, and Trade Partners | OEC - The Observatory of Economic Complexity. https://oec.world/en/profile/country/jpn.
13. Laboratory Reagents in Japan | OEC. OEC - The Observatory of Economic Complexity https://oec.world/en/profile/bilateral-product/laboratory-reagents/reporter/jpn?redirect=true.
14. JETRO Invest Japan Report 2022 | Reports - Why Invest - Investing in Japan - Japan External Trade Organization - JETRO. https://www.jetro.go.jp/en/invest/investment_environment/ijre/report2022/.
15. Investment powerhouse Japan earns 10% of GDP from overseas income. Nikkei Asia https://asia.nikkei.com/Spotlight/Datawatch/Investment-powerhouse-Japan-earns-10-of-GDP-from-overseas-income.
16. Inviting Excellent Researchers from Other Countries to Japan. https://www.jsps.go.jp/english/e-inv_researchers/.
17. Japan’s Troubling Shortage of New Scientific Researchers | Nippon.com. https://www.nippon.com/en/currents/d00397/.
18. Virtual scientific conferences open doors to researchers around the world | Science | AAAS. https://www.science.org/content/article/virtual-scientific-conferences-open-doors-researchers-around-world.
19. Japan: number of science-related international conferences. Statista https://www.statista.com/statistics/1377402/japan-number-science-related-international-conferences/.
20. Tran, J. L. Global competitiveness of Japan’s universities under scrutiny. The Japan Times https://www.japantimes.co.jp/news/2023/04/03/national/japanese-university-competitiveness/ (2023).
21. ニュースリリース. https://www.mdf-soft.com/company/news/news_221104.html.
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