Capital flight is the movement of capital from one country to another to ensure the preservation and security of assets. Within the Japanese government, concerns about capital flight due to the weak yen are constantly being whispered.

Capital flight is more likely to occur in countries experiencing financial or currency crises, but it can also occur due to a significant decline in currency value or asset value. The Japanese yen is steadily depreciating, its value is declining, and there seems to be no sign of it stopping.

Previously, the yen appreciated during crises, and when international tensions escalated due to war or pandemics, there was a movement to protect assets by converting held currencies into yen. The yen was a safe haven for capital flight and synonymous with a stable currency.

However, even during the COVID-19 pandemic and wars in Ukraine and Iran, the yen did not appreciate. The yen has somehow ceased to be seen as a stable currency. On the contrary, its value has fallen to the point where capital flight is now a concern. This is likely due to the loosening of fiscal discipline caused by abnormal monetary easing.

About ten years ago, an economist told me, “If the yen weakens, it’s unlikely to strengthen again.” At the time, I just shrugged it off, but it seems that’s exactly what’s happening.

If the yen continues to weaken, it’s not surprising that people will try to protect their assets by exchanging their yen for foreign currency now. It’s understandable that the government is concerned about capital flight.

The fundamental reason for the weak yen lies in low labor productivity. According to the Japan Productivity Center’s “International Comparison of Labor Productivity 2025,” Japan ranks 28th out of 38 OECD member countries. Without productivity growth, wages won’t increase, and the economy won’t be stimulated. The currency of a stagnant economy is usually sold off. And what awaits after a continuously sold currency is capital flight. (Kei Kitajima)