Why is the Japanese Yen so strong? What is its implications for anexport-driven economy like Japan? s1170199 Hiroki Seino
Present Japanese Yen The Yen reached recently a 15 year high against the Dollar. The cause for the strengthening of the Yen is that the Yen is a currency with net inflows.
The reason of Japanese surplus The reason for this is the combination of the strengthening trend itself, the Japanese trade surplus, the low return on investments in the rest of the world. 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. In an historic perspective, the strengthening of the Yen is nothing new and not unexpected.
Dollar historic trends of yen The overall trend during the last 20 years in clear the yen is getting stronger against the dollar. Dollar exchange rate has a fluctuating pattern with continuous lower tops. Thus a strengthening of the Yen is something that fits well with the historic perspective of both the last 20 years as well as the last 3 years.
Currency Theory It is all about demand and supply. When there is relatively more supply and less demand for yens, the yen will weaken. When there is more demand and less supply of yens, the yen will strengthen. Thus a strengthening yen means an increasing demand for yens compared to relatively less supply.
Demand for Japanese Assets Partly this could come from foreign reserves diversification. Other investors are seeking a temporary parking place for their money when they sell their other assets. There could also be a perception among market players that the U.S.
Economy complex When people perceive that money is becoming scarce or may become scarce in the future, they will reduce spending and increase savings, lowering demand. When inflation in a country is higher than in other countries, the currency becomes more expensive, exports become more expensive and exports will decline or grow slower, lowering the economic growth.
Forex Trading We would not recommend using our USD/JPY Exchange Rate History and Trend Chart for pure forex trading. These charts are a high level tool to show the current trend in the exchange rates. Historically, exchange rate trends change much more abrupt than trends in stock markets and these changes can be rather large immediate after a turn in the trend.
Conclusion The cause for the strengthening of the yen is that the yen is a currency with net inflows. Yen are bought then that there are yen sold more. The reason for this is the combination of the strengthening trend itself, the Japanese trade surplus, the low return on investments in the rest of the world.