Strong_Yen

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Strong_Yen

  1. 1. Why is the Japanese Yen so Strong s1170178 Yuya Ito
  2. 2.  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 – 1996 timeframe.  The Yen smashed through the 80 Yen-to-the-Dollar barrier, peaking at 76.25 Yen. History for Strong Yen
  3. 3.  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 right.  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
  4. 4.  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
  5. 5.  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 Japanese goods.  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- Japanese. Currency Theory
  6. 6.  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 decrease.  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
  7. 7.  The U.S. Federal Reserve may be more willing to conduct aggressive monetary easing than the Bank of Japan.  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
  8. 8.  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 2%.  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
  9. 9.  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. Conclusion
  10. 10.  STOCK TREND INVESTING, Why is the Japanese Yen so Strong, http://www.stocktrendinvesting.com/blog/why- japanese-yen-so-strong  BBC, Strong yen is a problem for the Japanese economy, http://www.bbc.co.uk/news/business-14526293  TIME, Japan’s Strong Yen Problem, http://www.time.com/time/business/article/0,8599,1722557 ,00.html  CNN, Japan’s in crisis: Why is the yen strong?, http://business.blogs.cnn.com/2011/03/17/japan%E2%80%99s -in-crisis-why-is-the-yen-strong/ References

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