Good news: That’s a pretty unlikely outcome.
Here’s why. Competitive devaluation is based on a faulty premise—that a weak currency is a net benefit. A weaker currency does help somewhat by making exports cheaper, but that doesn’t always translate into higher export volumes. For example, the value of Japan’s exports has increased as the yen has weakened, but export volumes have fallen. So it’s tough to argue a weaker yen has boosted overall output. Plus, the weak yen has a nasty side effect—more expensive imports. This is a big headwind for Japan, which imports most of its fuel—pricier energy raises production costs. Manufacturers are also squeezed by more expensive imports of component parts. And as energy costs rise, they likely have less cash to spend on these imported components. That can potentially lead to supply shortages, pushing export costs higher and offsetting much of the weak currency’s positive effects.
You can see this in Taiwan’s recent trade data—that may seem like a surprising source, but Taiwan exports several high-tech components (e.g., semiconductors and flat screen panels) to Japanese firms, so it’s a key indicator. In March, Taiwan’s exports to Japan fell 15.6% y/y by value—and given the currency moves over the past year, that means exports by volume fell significantly, too. So Japanese firms imported fewer and more expensive components from Taiwan, which likely pushes their manufacturing costs up and diminishes their output—and makes whatever goods they do produce more expensive than they otherwise would have been.
So policymakers who deliberately weaken a currency aren’t automatically giving their economy a boost. Rather, they’re picking winners and losers between the few firms that produce goods domestically start-to-finish and the many manufacturers that import raw materials and intermediate components—not to mention the consumers who benefit from cheaper imports. Japanese policymakers may not understand this at the moment, but other countries likely do and don’t see much reason to strive for a weaker currency.