Impact of Strong Yen

Topics: Economy of Japan, Macroeconomics, Business cycle Pages: 7 (2434 words) Published: April 23, 2013
Impacts of a Strong Yen

Strong Yen and its impacts on Japanese economy

The fluctuating of yen in the economy, mostly the appreciation, is a major concern for the economic world. According to Kawanishi (2001), by 1999, the strong yen had emerged as a problem to the economy of Japan. The issue of the rising Japan’s Yen is among the top issue on Japan’s economy that is partly within the control of the government. Since Japan’s dominance in the economic industry to its economic greatness, there has been a lot of economic crisis. The cause of economic crisis for Japan is enhanced by factors ranging from lack of entrepreneurship skills, the cheap, work forces by China and raised energy costs, after the nuclear disaster, among others. Despite the problem, the government has received blame for taking no measure to control the alarm caused by the high rising yen. The rise of the yen to an extent of fitting into an economic issue began mostly in the United States and later spread to Europe. This according to Fackler resulted in 2007 after the American housing crisis. Obstfeld explores the relation between Japan’s microeconomic developments and the rates of the currency at the time of Japan’s bubble economy, as well as the resulting stagnation. Also, Obstfeld points out the determinants of the rising of yen. The Bank of Japan’s act of keeping the interest rates low resulted to money flowing out of Japan. Initially the plan aimed at stimulating growth and searching for higher returns. The yen rated at 76 to the dollar at the time and remains not too far from the level today. The importance of Japan’s economy to the U.S. rages from the Bank of Japan being the largest holder of the treasuries in the United States. The aim of this is to keep the yen relatively low than the U.S. dollar and also make the yen highly competitive. The result of this is a high percentage of the GDP output making Japan’s economy weak. According to Sing, “a strong yen has both beneficial and adverse effects on the economy.” The yen has had drastic fluctuations for the Japanese economy. Japan’s trading and market partners are not also saved by the strong yen. The result of this was prolonged stagnation and eventually chocked upward movement of the same by weakening export profits. The rising of the yen has resulted to a series of issues to the economy of Japan, and even to the international dealings, as well as that of its people. A strong yen has contributed enormously to the appreciation in the import industries such as the natural gas, petroleum, and food staff. In addition, it leads to an increased purchasing power for Japan. It also affects the domestic market stabilization. The strong yen contributes to deflation by flooding cheap imported products into Japan. The low cost of Japan’s imported products allows persons actively to involve in more saving and pensions for the retired persons. The rising of Japan’s Yen has caused significantly to the rising costs of Japan’s products abroad. On the other side, a high japans’ currency leads to a limit in the export of manufactured goods as electrical products, automobiles to the international markets. This reassures the outsourcing of industrial activities. In the future, the problem will blow off the country’s essential export products. The high yen is said to benefit the elderly population at Japan, but hurts most the other sectors of the country. Deflation and the high and strong yen result from the relation and interactions between generations, where the most senior are at the top. Japan’s industrial base is on the lowering, as the high price of the strong yen. Investors and companies are initially moving abroad leading to stagnation in Japan’s economy. Individuals view like Japan has lost its control over its currency. However, it has reported positively in recovering from the yen crisis and shocks but its economy is in the fall. The rise of yen also may potentially impact the economic...
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