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Why is the Japanese Yen so strong? What is its  implications for anexport-driven economy      like Japan?        s1150027 ...
ContentsAbstractYen / Dollar Historic TrendsExpected the oppositeTrade Cash FlowInvestment Cash FlowSummaryCurrency Theory...
AbstractIn summary, the cause for the strengthening of theYen is that the Yen is a currency with net inflows;more Yen are ...
Yen / Dollar Historic           TrendsThe overall trend during the last 20 years inclear; the Yen is getting stronger agai...
Expected the oppositeThe domestic interest rates in Japan areabout the lowest in the world and not veryattractive to park ...
Trade Cash FlowJapan has a trade surplus and is exportingmore than importing. This keeps the currencystrong. The strengthe...
Investment Cash FlowThere seems to be a strong demand from non-Japanese investors for Japanese assets,especially short-ter...
SummaryThus in summary, repeating what we said above:the cause for the strengthening of the Yen is thatthe Yen is a curren...
Currency TheoryIn short, it is all about demand and supply. Whenthere is relatively more supply and less demandfor Yen’s, ...
Referencehttp://www.stocktrendinvesting.com/blog/why-japanese-yen-so-stronghttp://www.reedconstructiondata.com/alex-carric...
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How is the_japanese_yen1

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Transcript of "How is the_japanese_yen1"

  1. 1. Why is the Japanese Yen so strong? What is its implications for anexport-driven economy like Japan? s1150027 Wararu Imaizumi
  2. 2. ContentsAbstractYen / Dollar Historic TrendsExpected the oppositeTrade Cash FlowInvestment Cash FlowSummaryCurrency TheoryReference
  3. 3. AbstractIn summary, the cause for the strengthening of theYen is that the Yen is a currency with net inflows;more Yen are bought then that there are Yen sold.The reason for this is the combination of thestrengthening trend itself, the Japanese tradesurplus, the low return on investments in the rest ofthe world, the expected monetary policy in the U.S.and the diversification of foreign reserves in othercountries away from the U.S. Dollar and Euro. In anhistoric perspective, the strengthening of the Yen isnothing new and not unexpected.
  4. 4. Yen / Dollar Historic TrendsThe overall trend during the last 20 years inclear; the Yen is getting stronger against theDollar. The Yen / Dollar exchange rate has afluctuating pattern with continuous lower tops;the current strengthening of the Yen since thelast top in the chart is already taking placesince mid 2007.
  5. 5. Expected the oppositeThe domestic interest rates in Japan areabout the lowest in the world and not veryattractive to park your money. Japan has an aging population and this willtemper the economic growth in Japancompared to the more vibrant demographicsin the U.S. for example.Japanese public debt as a percentage ofGDP is about twice the size of the U.S.public debt. And the Japanese deficit doesnot look much better.
  6. 6. Trade Cash FlowJapan has a trade surplus and is exportingmore than importing. This keeps the currencystrong. The strengthening currency could lowerexports and increase imports in the long run.But in the short term it reinforces itself forexample by reducing the supply of Yenrequired for imports. Note that the U.S. is importing more than thatit is exporting; remember the U.S. tradedeficit? This weakens the U.S. currency.
  7. 7. Investment Cash FlowThere seems to be a strong demand from non-Japanese investors for Japanese assets,especially short-term money marketinstruments. The demand for assets outside Japan hasdefinitely not been very strong recently; justthink about how the stock markets around theworld have behaved the last six months.
  8. 8. SummaryThus 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 Yenare bought then that there are Yen sold.Thereason for this is the combination of thestrengthening 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 inother countries away from the U.S. Dollar andEuro. In an historic perspective, the strengtheningof the Yen is nothing new and not unexpected.
  9. 9. Currency TheoryIn short, it is all about demand and supply. Whenthere is relatively more supply and less demandfor Yen’s, the Yen will weaken. When there ismore demand and less supply of Yen’s, the Yenwill strengthen.Thus a strengthening Yen meansan increasing demand for Yen’s compared torelatively less supply (selling Yen’s and gettingother currencies in return).The strength of acurrency is driven by trade and current accounts.These are two sides of the same coin.
  10. 10. Referencehttp://www.stocktrendinvesting.com/blog/why-japanese-yen-so-stronghttp://www.reedconstructiondata.com/alex-carrick/post/why-is-the-value-of-the-japanese-yen-so-strong-interest-rates-and-the-carry/
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