1. Why is the Japanese Yen so
strong?
Natsumi Sato(2013.1)
2. Situation of Japanese yen
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.
3. Strong yen means in the world market
• The Yen reached
recently a 15-year
high against the
Dollar. Was this in line
with expectations?
What is happening
and what is causing
this? Here are the
analysis and
conclusions on why
the Yen is so strong.
4. How can Japanese yen be strong?
• 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.
5. How Japanese export suffers due to the
strong yen.
• When comparing Japan with the U.S., one
could be surprised by the strengthening of
the Japanese Yen. The economic situation
for Japan compared to the U.S. does not
look that good and one may expect
countries with a healthier economy to get
a stronger currency, isn’t it?
6. The problem with domestic spending
• 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.
7. Effect on the strong yen.
• 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.
• The overall trend during the last 20 years
in clear; the Yen is getting stronger against
the Dollar.
8. Future of Japanese yen
• In the short term, reacting to a rise in risk aversion,
flows into yen have been strong, pushing the
currency up 2% in the month of May. Traders cut
their short positions and added to longs, reducing
the net short position to just US$-1.7 billion.
Technical’s suggest ongoing downside risk;
however a drop below 77 in USDJPY will
aggravate intervention rhetoric. The near-term
suggest a lower USDJPY; however Japanese
fundamentals are weak, which should help
USDJPY recover back up to 83.00 by year-end.
9. Conclusion
• The Japanese real effective exchange rate
depreciated 43% between the end of 2000
and the onset of the global financial crisis
and then appreciated 30% over the next
year and a half. Japanese firms
complained that these exchange rate
swings have had a devastating impact on
profits, exports, and output.
