Why is the Japanese Yen
s1170178 Yuya Ito
The overall trend during last 20 year, the Yen is getting
stronger against the Dollar.
The current strengthening of the Yen since the last top in
the chart is already taking place since mid 2007.
Thus a strengthening of the Yen is something that fits well
with historic perspective of both the last 20 years as well
as the last 3 years.
The unusual period in the last 20 years was in the 1993 –
The Yen smashed through the 80 Yen-to-the-Dollar barrier,
peaking at 76.25 Yen.
History for Strong Yen
The economic situation for Japan compared to the U.S.
does not look that good and one may expect countries
with a healthier economy to get a stronger currency by
The domestic interest rates in Japan are about the lowest in
the world and not very attractive to park your money.
Japan has an aging population and this will temper the
economic growth in Japan compared to the more vibrant
demographics in the U.S. for example.
Japanese public debt as a percentage of GDP is about twice
the size of the U.S. public debt. And the Japanese deficit does
not look much better.
Expected the Opposite
for Strong Yen
The Japanese trade surplus.
The low return on investments in the rest of the world.
Major Japanese corporations will need to bring back
boatloads of yen from foreign markets to pay for damages
done by the earthquake and tsunami
In an uncertain world, Japan and the Yen are increasingly
being seen as safe havens.
The expected monetary policy in the U.S. and the
diversification of foreign reserves in other countries away
from the U.S. Dollar and Euro.
Cause for the Strong Yen
When there is relatively more supply and less demand for
Yen’s, the Yen will weaken. When there is more demand
less supply of Yen’s, the will strengthen.
Trade Cash Flow
Japan has a trade surplus and is exporting more than
importing. Thus demand for Yen increase to buy the
Investment Cash Flow
There seems to be a strong demand from non-Japanese
investors for Japanese assets, especially short-term money
market instruments. Thus demand for Yen increase from non-
Demand of Yen increases from foreign reserves
diversification because U.S. and Euros face a credit or
sovereign debt crisis and U.S. Dollar and Euro
Investors are seeking a temporary parking place for
their money when they sell their other assets. Then
the very low interest rate on U.S. treasury and the
strengthening trend in Yen, Yen money market
instruments could look very attractive.
Demand for Japanese Assets
The U.S. Federal Reserve may be more willing to
conduct aggressive monetary easing than the Bank of
Before investors borrowed Yen at very cheap interest
rates, used it to invest in other countries where the
returns were higher.
Demand for Japanese Assets
The strong Yen makes Japan’s products less competitive
compared with rivals.
Profits made abroad are worth less when Japanese
company are brought back home, called “Currency Losses”.
For every Yen the Dollar drops, Toyota’s operating profit falls
Over time, Japan’s economy will be hollowed out.
More half of leading Japanese firms were considered moving
some factories and offices overseas.
Problems for Strong Yen
Japanese economic situation is not very good.
In economy crisis in U.S. and Euros, Japan and the Yen
are very trusted from non-Japanese investors.
Currency is balance of demand and supply in short.
Japanese assets has demand from various sides.
Strong Yen has various problems and especially a
devastating consequence for export.
STOCK TREND INVESTING, Why is the Japanese Yen so
BBC, Strong yen is a problem for the Japanese economy,
TIME, Japan’s Strong Yen Problem,
CNN, Japan’s in crisis: Why is the yen strong?,