Japan became increasingly reliant on Asia as a market for its goods and services during the last 15 years. Asia -- especially China, South Korea and Taiwan -- is now the largest destination for Japanese exports. It's not hard to see how a weaker yen has enabled Japanese companies to penetrate Asia's economies.
Asia's interconnectedness with Japan means that in the short run, a depreciating yen may be a negative. In the longer run, however, the IMF paper finds that Asian economies could gain, thanks to lower capital costs. Cheaper capital may more than offset the trade lost from a weaker yen.
Healthier growth in Japan could give a major boost to Asia's export markets. As a result, equity markets throughout Asia could begin to rise as investors bet on increased exports to Japan. If a much weaker yen can help bring about this result for Asia, perhaps it's worth a try.
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