Why is japanese yen so strong


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Why is japanese yen so strong

  1. 1. Why is the Japanese Yen so strong? s1180036 Taisuke Honda
  2. 2. Outline ● Introduction ● Yen / Dollar Historic Trends ● Currency Theory ● The strength of a currency ● The problems of a strong Yen in Japan ● Countermeasure ● Summary ● References
  3. 3. Introduction ● The Yen is getting stronger against the Dollar during the last 20 years in the overall trend . ● The Yen / Dollar exchange rate has a fluctuating pattern with continuous lower tops. ● The unusual state has begun from during 1996 after 1993. Then the Yen was relatively very strong.
  4. 4. Yen / Dollar Historic Trends ● From 1949 till 1971, there was a 1-dollar fixed exchange rate of 360 yen. ● After Decmber 1971, it became a 1-dollar fixed exchange rate of 308 yen. ● In February 1973, it shifted to the floating exchange rate system. ● In April 1995, $1=79.75 yen was recorded. It was a peak price of the Japanese yen. ● In 2012 the Yen/Dollar exchange rate is 90 Yen per 1 dollar.
  5. 5. Currency Theory ● If a trade surplus increases, strong Yen will progress, or it will become weak Yen if a trade surplus decreases conversely. ● If a Japan-U.S. interest differential is expanded, it becomes a strong dollar against the Yen. ● It is about demand and supply. If there is more supply and less demand for Yen, the Yen will weaken. If there is more demand and less supply of Yen, the Yen will strengthen.
  6. 6. The strength of a currency ● The strength of a currency is decided by trade and current accounts. ● In trade cash flow, the export from Japan causes the demand of Yen. But, import into Japan create supply of Yen. ● In the investment cash flow, Investments from outside Japan cause demand for Yen. But, Investments from Japan create supply for Yen.
  7. 7. The problems of a strong Yen in Japan ● In Japan, the biggest problem of a strong Yen is that export becomes difficult. ● Especially export of car and home electronics is influenced very much by the exchange rate. ● If it becomes strong Yen for the reason, many company relocate their factory overseas. ● As the result, jobless people increase and Japan becomes depression.
  8. 8. Countermeasure ● According to currency theory, in order to make Yen cheap, there is the method of supplying Yen in large quantities. ● Although the Bank of Japan which is a Japanese central bank is making the money supply increase, compared with the United States, it is not enough. ● As the result, strong Yen continued for 20 years.
  9. 9. Summary ● Strong Yen for these 20 years is the biggest problem for Japan. Strong Yen is one of the big causes of depression of Japan. ● In order to solve strong Yen problem, it is important to adjust the demand and supply of Yen. ● For the purpose, the Bank of Japan needs to increase the amount of supply of Yen.
  10. 10. References ● Go Wizardry http://gowizardry.com/?p=3266 ● Currency Thoughts http://currencythoughts.com/2011/09/14/why-the-yen-is-strong/ ● INVESTOPEDIA http://www.investopedia.com/financial-edge/0411/why-the-yen-is-so-strong.aspx ● BloggingStocks http://www.bloggingstocks.com/2009/01/26/why-is-the-japanese-yen-so-strong/