Photo/Illutration The Bank of Japan (Asahi Shimbun file photo)

The purchasing power of the Japanese currency has declined to its lowest level in half a century, raising concerns that higher prices for imported goods will add strains on consumers and businesses.

The real effective exchange rate is a measure of a nation’s international competitiveness against its trading partners. It takes into account the price levels of about 60 countries and regions.

A lower rate indicates that imports are becoming more expensive while exports are becoming cheaper.

The yen’s real effective exchange rate fell to 67.55 in January against 100 for the base year of 2010, a level not seen since June 1972, when it was 67.49, according to Bank of Japan statistics based on data from the Bank for International Settlements.

The indicator is expected to remain at historical lows for some time to come, reflecting the yen’s depreciation and the domestic commodity prices that have stayed more or less flat compared with other countries.

The January figure, announced on Feb. 22, is lower than in June 2015, when the yen significantly weakened. The rate recorded its highest level of 150.85 in April 1995 due to the currency’s substantial appreciation.

“It looks like the real effective exchange rate will continue to decline,” said Tsuyoshi Ueno, an economist at the NLI Research Institute. “Since a sluggish growth is expected in wages, ballooning costs of imports could place a greater burden on households.”

A key reason behind the decline is that the yen has remained weak due to differences in monetary policy between Japan and the U.S. and European authorities.

While the U.S. Federal Reserve and European central banks are moving to tighten credit to rein in inflation, the BOJ plans to continue with its monetary easing policy.

The policy differences have resulted in a widening gap in interest rates between Japan and the U.S. and European economies, which led to the selling of the Japanese currency.

Another factor appears to be the relative decline in the yen’s purchasing power due to sharp increases in overseas commodity prices, particularly in the United States and Europe.

Japan’s economy stagnated and entered a deflationary phase after the yen’s real effective exchange rate hit the all-time high in 1995. The foreign exchange interventions to stop the yen’s appreciation and the large-scale monetary easing also contributed to its decline.

The Asahi Shimbun