As foreign exchange rates are important variables in the management of firms, the sharp volatility in the foreign exchange market creates a problem in terms of firms’ ability to respond to such changes. Towards the middle of the 2000s, when the yen depreciated sharply, production shifted back to Japan and the rising trend in the overseas production ratio came to a halt.
Now that the yen is appreciating, a swing in the foreign exchange rate makes it more painful for firms to adjust to these changes. As announced in the statement of G7 Finance Ministers and Central Bank Governors, both the Government and the Bank of Japan judge that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.