Do you think the weakening Japanese yen is helping the Japanese economy to revive? What seems to be the problem? What is your own personal opinion on the issue about how Japanese economy can bounce back?
Similar to Do you think the weakening Japanese yen is helping the Japanese economy to revive? What seems to be the problem? What is your own personal opinion on the issue about how Japanese economy can bounce back?
Similar to Do you think the weakening Japanese yen is helping the Japanese economy to revive? What seems to be the problem? What is your own personal opinion on the issue about how Japanese economy can bounce back? (20)
Do you think the weakening Japanese yen is helping the Japanese economy to revive? What seems to be the problem? What is your own personal opinion on the issue about how Japanese economy can bounce back?
1. Do you think the weakening Japanese yen
is helping the Japanese economy to revive?
What seems to be the problem? What is
your own personal opinion on the issue
about how Japanese economy can bounce
back?
s1190092
2. Yen / Doller Historic
Trends The overall trend during the last 20
years in clear; the Yen is getting stronger
against the Dollar. The Yen / Dollar exchange
rate has afluctuating pattern with continuous
lower tops; thecurrent strengthening of the Yen
since the last top in the chart is already taking
place since mid 2007.
3. Expected the opposite
The domestic interest rates in Japan are
aboutthe lowest in the world and not very
attractive to park your money. Japan has an
aging population and this willtemper the
economic growth in Japan comparedto the
more vibrant demographics in the U.S. for
example.
4. Expected the opposite
Japanese public debt as a percentage of GDP
isabout twice the size of the U.S. public debt.
And the Japanese deficit does not look much
better.
5. Currency Theory
Exports from Japan cause demand for Yen to
buy the Japanese goods.Imports into Japan
create supply of Yen to buy other currencies to
pay for the imports.
6. Demand for Japanese Assets
Other investors are seeking a temporary
parking place for their money when they sell
their other assets. With the poor performance
of stock markets around the world, the very low
interest rate on U.S. treasury and the
strengthening trendin Yen, Yen money market
instruments could look very attractive.
7. Demand for Japanese Assets
The expectation for the differences in interest rate in Japan
and the U.S. will also have its influence on the exchange
rate. The Japanese interest rates have always been the
lowest.But when the expectation is that this difference iswill
become less big (e.g. dropping U.S. treasury rates) or
when the U.S. is not expected toincrease interest rates for
the foreseeable future, the carry trade will slow down or
unwind, strengthening the Yen further.
8. Summary
Thus in summary, repeating what we
said above:the cause for the
strengthening of the Yen is thatthe Yen
is a currency with net inflows; more Yen
are bought then that there are Yen
sold.
9. Summary
The reason for this is the combination of the strengthening
trend itself, the Japanese tradesurplus, the low return on
investments in the restof the world, the expected monetary
policy in theU.S. and the diversification of foreign reserves
in other countries away from the U.S. Dollar andEuro. In an
historic perspective, the strengthening of the Yen is nothing
new and not unexpected.
