The Currency Value of Japan

Lauren Perez

Japan's Currency & Exchange Rate

The Japanese yen is the third most traded currency in the world, and also the most heavily traded currency in Asia. Due to its relatively low interest rates, the yen is often used in carry trades with the Australian Dollar and the US Dollar.

Balance of Payments

-The trade balance represents the amount remaining when imports are subtracted from exports, so a deficit means that imports outweighed exports, which then means a rapid loss of strength in Japan's export industries, the backbone of the economy. This deficit is growing rapidly with no sign of stopping.

-Economists and economic policy pundits are concerned that this might have various negative impacts on the Japanese economy ahead. What has surprised economists is that yen depreciation has not to date shown any sign of boosting exports.

-The yen has dropped almost 30 percent in value from 80 to the US dollar in fall 2012 down to 102, hugely improving the profitability of export firms

Japan's Economic Conditions

-Over the past five years, Japan’s economic freedom has experienced a turnaround, with early losses overcome by recent gains. In particular, improvements in labor and trade freedom have contributed to overall score gains.

-Given most of Japanese trade is invoiced in US dollars, the recent appreciation of the yen to above 80 yen per dollar is a serious problem for the Japanese economy, and threatens exports and GDP growth.

The Political Stability of Japan

-The stability of value and the ample supply of liquidity are prerequisites for becoming a key global currency. Ever since the US abandoned the gold standard in 1971, the dollar has continued to depreciate relative to other major currencies, including Germany’s former currency, the mark, and the yen.

-The stability of the dollar’s value was lost around 1998 when the US’s foreign assets became negative and now the ample supply of liquidity also seems to have been lost. It is obvious that the dollar is beginning to lose its position as the key global currency.