Japan Yen Analysis

810 Words 4 Pages
Japan has now been ranked as the third largest economy in the world. This status definitely did not come easy, as for several decades Japan suffered from low growth rates and deflation, with very little signs of economic recovery. In addition, several unfortunate events hindered Japan’s growth even further. Such events included the global economic recession in 2008-2009 which negatively affected several countries around the world, hence resulting in a decline for Japanese exports on the global markets, particularly the United States and Europe. Also, in 2011 the 9.0 magnitude earthquake and the resulting tsunami which hit Japan caused severe infrastructural damage, thus disrupting manufacturing and setting Japan even further back. As if that …show more content…
In 1871 the New Currency Act officiated Yen as the Japanese currency in the hopes of bringing economic stability to Japan. In the first half of the 2000’s the Yen was relatively weak against the U.S dollar. A possible cause for this weakness was a financial strategy called the carry trade which involved borrowing in Japanese yen, and as previously mentioned the interest rates were close to 0%, and then investing the loans in assets which would bring in higher interest such as U.S Treasury bills which had interest rates which were about 3 to 4% higher. However, when the global financial crisis of 2008-2009 hit, the U.S Federal Reserve lowered U.S interest rates on the U.S Treasury bonds by injecting liquidity in poor financial markets. This resulted in the carry trade being unprofitable, and financial institutions now began buying yen to pay back their original loans. This increased the demand for Yen, which in turn increased the currency’s value. A strong Yen is problematic for Japan’s economy as it reduces the country’s price competitiveness of its exports, and as exports become more expensive, demand for Japanese products decrease and well as overall profits. For the past years the Yen has experienced a never before seen strength …show more content…
It also serves as the United States fourth largest trading partner. These two economies are closely intertwined through trade and capital flows, and according to a 2012 estimate together they account for over 30% of the world domestic product. To truly understand the U.S and Japan’s economic trends one must carefully analyze the differences in the figures of their economic indicators. Such economic indicators such as Gross National Income (GNI), Gross National Product (GDP), and inflation rates amongst others allow for analysis of economic performance and predictions of future

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