The byproduct of sericulture in different industries.pptx
Week11
1. Why is the Japanese Yen so
strong? What is its implications for
an export-driven economy like
Japan?
S1170153
Noritaka Shimizu
2. Yen / Doller Historic Trends
The overall trend during the last 20 years in
clear; the Yen is getting stronger against the
Dollar.
The Yen / Dollar exchange rate has a
fluctuating pattern with continuous lower tops; the
current strengthening of the Yen since the last top
in the chart is already taking place since mid
2007.
3. Expected the opposite
The domestic interest rates in Japan are about
the lowest in the world and not very attractive to
park your money.
Japan has an aging population and this will
temper the economic growth in Japan compared
to the more vibrant demographics in the U.S. for
example.
4. Expected the opposite
Japanese public debt as a percentage of GDP is
about twice the size of the U.S. public debt. And
the Japanese deficit does not look much better.
5. Currency Theory
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. Demand for Japanese Assets
Other investors are seeking a temporary parking
place for their money when they sell their other
assets. With the poor performance of stock
markets around the world, the very low interest
rate on U.S. treasury and the strengthening trend
in Yen, Yen money market instruments could look
very attractive.
7. Demand for Japanese Assets
The expectation for the differences in interest rate
in Japan and the U.S. will also have its influence
on the exchange rate. The Japanese interest
rates have always been the lowest.
But when the expectation is that this difference is
will become less big (e.g. dropping U.S. treasury
rates) or when the U.S. is not expected to
increase interest rates for the foreseeable future,
the carry trade will slow down or unwind,
strengthening the Yen further.
8. Summary
Thus in summary, repeating what we said above:
the cause for the strengthening of the Yen is that
the Yen is a currency with net inflows; more Yen
are bought then that there are Yen sold.
9. Summary
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.
