Why is the Japanese Yen so
strong? What is its implications
for an export-driven economy like
Japan? Report on the current
status of the currency and what it
Japanese Yen so Strong
・The cause for the strengthening of the Yen is
that the Yen is a currency with net inflows.
・The combination of the strengthening trend
・The Japanese trade surplus.
・The low return on investments in the rest of
・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.
Yen / Dollar Historic Trends
・The Yen is getting stronger against the Dollar.
・The Yen / Dollar exchange rate has a
fluctuating pattern with continuous lower tops
・When there is relatively more supply and less
demand for Yen’s, the Yen will weaken.
・When there is more demand and less supply
of Yen’s, the Yen will strengthen.
・The strength of a currency is driven by trade
and current accounts.
The trade cash flow.
・ Exports from Japan cause demand for Yen to buy the
・Imports into Japan create supply of Yen to buy other
currencies to pay for the imports.
The investment cash flow
・Investments from outside Japan in Japanese assets
cause demand for the Yen.
・Investments from Japanese investors outside Japan
create supply and thus a weakening factor for the Yen.
Trade Cash Flow
・Japan has a trade surplus and is exporting
more than importing.
・The strengthening currency could lower
exports and increase imports in the long run.
・in the short term it reinforces itself by reducing
the supply of Yen required for imports.
Investment Cash Flow
・ The demand for assets outside Japan has
definitely not been very strong recently.
・There is also the fact that Japanese savers
have preferred Japanese Government Bonds
for decades, allowing the Yen to stay strong
despite world record low levels.
Demand for Japanese Assets
・This could come from foreign reserves
・The Japanese interest rates have always
been the lowest.