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William Pesek

Japan's Newest Export: Deflation

Japan's weak exchange rate is exporting deflation to the region. South Korea has been particularly hard hit.
Land of the sinking yen.

Land of the sinking yen.

Photographer: KAZUHIRO NOGI/AFP/Getty Images

In 2006, seven years before he became Bank of Japan governor, a testy Haruhiko Kuroda told me he thought China was raising its own living standards at the expense of its Asian neighbors.  "The relationship between exchange rates and poverty reduction is not so direct, but a more flexible Chinese exchange rate would benefit Asia," Kuroda, who at the time was head of the Asian Development Bank, told me in his office overlooking the Manila skyline. "It would make a difference."

Today, those remarks demand to be read with a sense of irony. As Japan's leading central banker for the past two years, Kuroda has relentlessly weakened the yen, which means he is now responsible for precisely the same regional dynamic he once lamented.