Why is the Japanese Yen so strong Writing for the Workplace – Fall 2011 s1170267 Nguyen Tat Thang LOGO
Contents1 Financial Definition2 The strong Japanese Yen3 Everybody’s fear4 Conclusion and Reference5
Financial Definitionv Interest rate: the rate at which interest is paid by a borrower for the use of money that they borrow from a lender.v Assets: in financial accounting, assets are economic resources. Assets represent the ownership of value that can be converted into cash.
Financial Definition Import into Japan cause supply for Yen Export from Japan cause demand for YenInvestment into Japancause demand for Yen Investment from Japan to outside cause supply for Yen
The strong JPYv The JPY reached recently 15 year high against Dollar while Japanese domestic economy has been near-comatose for the same long time.v The JPY is currently with net inflows.v The Japanese trade now is surplus while the rest of the world has low return on investments.v Trade surplus and exporting more than importing keep the currency strong as the “demand-supply principle”.
The strong JPYv Japanese economy situation: § has the lowest domestic interest rate in the world. § has highest public debt in the world with 225% GDP equivalent. § There is strong demand from non-Japanese investor for Japanese assets. § is suffering the effect of inflation and assets bubble.
Everybody’s fearv Think back in mid-Eighties, strong dollar was killing US exporters and allow Japan to steal all US manufacturing jobs.v The higher exchange rate of JPY and another currency is, the more expensive Japanese goods become oversea.v The market competition become harder for Japanese exporters.v Japanese export came in at 5.2 trillion yen, straight falling in two month.
Everybody’s fearv The soaring JPY is causing a severe global economic slowdown.v Global investors are turning into yen as a safer investment.v Japan – a big exporter – has strong currency will weaken the global demand on goods.
Conclusionv The JPY is with net inflows and has globally high demand.v Japan should increase interest rate to avoid the “carry trade” phenomenon.v Japanese government should wisely use tax to address with public debt problem in future.