The Japanese yen has strengthened against the US dollar over the past 20 years due to Japan having a trade surplus and exporting more than importing. This creates demand for yen that exceeds the supply from imports, driving up the currency's value. Additionally, Japanese investments abroad have not been strong, reducing the supply of yen on international markets. However, a strong yen poses problems for Japan's export-driven economy by making Japanese goods more expensive overseas and reducing demand over the long run.

1. Why is the Japanese Yen so
strong? What is its implications for
an export-driven economy like
Japan?
ID: s1160140

2. Japanese Yen
● The yen should now be trading for between 76
and 83 yen to the doller.
● The situation that relative value of yen as
Japanese money is higher than a level in
international markets.

3. Yen / Doller History and Trends
● The overall duaring the last 20-years in clear.
Then, The yen become stronger against the
doller.
● The yen and doller exchange rate has a
fluctuating pattern with continuous lower tops.

4. Why is the Yen Strong?
● The strength of a currency is driven by trade
and current accounts. These are two sides of
the same coin.(The trade cash flow and The
investment cash flow)
● In short, it is all about demand and supply.
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.

5. The Trade Cash Flow.
● Exports from Japan cause demand for Yen to
buy the Japanese goods.
● Imports into Japan create supply of Yen to buy
other currencies to pay for the imports.

6. The Investment Cash Flow.
● Investments from outside Japan in Japanese
assets cause demand for the Yen. If these
assets are more in demand, the price goes up
and the Yen becomes even stronger.
● Investments from Japanese investors outside
Japan create supply and thus a weakening
factor for the Yen. When there is less demand
for these assets the price in Yen goes down
and the Yen would strengthen.

7. Japan’s Trade Cash Flow
● Japan has a trade surplus and is exporting
more than importing. This keeps the currency
strong.
● The strengthening currency could lower exports
and increase imports in the long run. But in the
short term it reinforces itself for example by
reducing the supply of Yen required for imports.

8. Japan’s Investment Cash Flow
● The demand for assets outside Japan has
definitely not been very strong recently.

9. Summary
● Cause for the strengthening of the yen is that
the yen is a currency with net inflows.

10. Japan's Strong Yen Problem
● Economists are quick to point out that a weak
dollar doesn't necessarily mean a strong yen.
● Japanese consumers are faced with a mixed
bag. The slight appreciation of the currency
helps in capping the rising cost of food and fuel,
which have both become concerns due to price
inflation.

11. References
● http://www.stocktrendinvesting.com/blog/why-
japanese-yen-so-strong
● http://www.time.com/time/business/article/0,859
9,1722557,00.html
● http://edition.cnn.com/2011/BUSINESS/03/17/ja
pan.yen/index.html
● http://financialedge.investopedia.com/financial-
edge/0411/Why-The-Yen-Is-So-
Strong.aspx#axzz1hvYu9zBA