Analyze foreign exchange and investment and the effects each nation’s economy has on another nation’s economy
Abstract
This paper assesses the economic, political, and natural factors influencing the Japanese yen fluctuations against the U.S. dollar in the foreign exchange between 2007 to 2012. The economic recession marked the beginning of structural issues culminating in 2007. The Japanese exchange market was further exacerbated by the rapidly aging population and the strict banking regulations enacted in the early 1990s. Also, the Basel Capital requirements curtailed entrepreneurship, innovation, technological advancements that contribute to economic growth. This slowed the Yen’s circulation led to the continuous depreciation of its value and viability to carry trade in the forex markets. The paradigm shift changes in the trade changes cause depreciation of the Yen against the U.S. dollar. However, the Keynesian public investment’s minimal gains were set back by the March 2011 earthquakes and Tsunamis that struck Japan’s island.
Conversely, on 17th March, the Yen bounced back and charted the foreign exchange markets. In summary, the forex market is a highly volatile and competitive environment that dictates every currency’s value against the U.S. dollar daily. It is uncertain whether the yen exchange rate’s future with the complex political-economic and natural events occurs.
Keywords: Yen, U.S dollar, Foreign exchange market, Basel capital requirements, Keynesian public investment, Forex markets
Analyzing yen fluctuations
Introduction
A country’s currency determines the exchange rate in the forex exchange market. Historically the US, Canada, Italy, Germany, Japan, U.K. and, France have the strongest currencies. For decades, the U.S. dollar has been the litmus test that determines the strength of a country’s economy within its borders and beyond. According to OECD, the value of a country’s currency is directly related to its economics (CEIC, 2007). The U.S. dollar has accumulated a lot of value and viability over the years. In this regard, its appreciation pressure can affect a country’s currency’s performance, and it can be used as an indicator for predicting the exchange rate development tendencies. However, there is no correlation between the appreciation pressure and the Japanese yen’s exchange rate fluctuations (Hao, 2009). Therefore the forex market theory further upholds that all currencies should be compared against the U.S dollar to analyze and investigate its value in the forex market charts. This paper aims to discuss the political, economic factors affecting and influencing the Japanese Yen exchange rate from 2007 to 2012. To examine Yen’s exchange rate against the U.S dollar, I retrieved Yen’s performance against the U.S. dollar for five years to investigate the Japanese economy’s macroeconomics during that time. The chart below shows the Yen’s performances when it hit an all-time low to stronger than the USD dollar and achieved parity with the U.S. dollar (CEIC, 2007).
As\
As of 2007, Japan was still recovering from the most severe economic market crash ever experienced in the history of globalization and knowledge-based economies. All the modernized industrialization gains, innovation, and technology were radically were abruptly brought to a standstill. This period was marked by the beginning of slowed economic growth that led to the Yen’s weakening due to its limited business transactions. Furthermore, the Yen’s depreciation was triggered by the drastic increase in the aging population and monetary tightening policies enacted in the early 1990s. According to Smil(2012), Japan has the highest expectancy rates in the World. However, the Government of Japan stipulates that individuals should receive retirement at the age of 60 years. This increases the widening gap of workers shortage which causes low output per production every year. These policies’ yearly application exacerbates the already declining workforce, which simultaneously causes low output per production, low economic impetus on the countries’ economy. The number of older people is increasing while the younger generation is on the spiral decrease. With aged people leaving the workplace, labor and manufacturing started experiencing slowed production due to the limited workforce. As a result, companies in Japan overutilize the available workers under low wages, while some opt to outsource labor from neighboring countries at very high costs. The paradigm shift changes in the trade changes cause depreciation of the Yen against the U.S. dollar. The boom-bust fluctuations of the working population experienced in 2012 are directly linked to the Yen’s depreciation. Further, the work population crisis of 2012 reduced the Consumer Price Index beyond projected expectations as the elderly consume less than the young people. From an econometric perspective, this negatively affected the performance of the Yen against the U.S. dollar.
The following year, the Yen was still depreciating due to the prevailing issues that had dominated the economy. In 2012, the Bank of Japan passed into law the monetary tightening policies known as the Basel Capital requirements that prohibited commercial banks from lending money to small businesses. The Basel Capital requirements curtailed entrepreneurship, innovation, technological advancements that venture into new environments and positively contribute to its growth and development. Simultaneously, the Basel Capital requirements legislation greatly affected the interest rates, monetary policies, and borrowing and lending rates for businesses. The Basel 1 regulation states that all banks should retain 8% capital in their reserves to salvage the economy from the severe and prolonged economic recession in the early 1990s. Following this, Japanese banks introduced stringent policies and hefty fines to minimize small business enterprises’ lending money. In effect, the Central Bank of Japan also minimized its borrowing tendencies and capacity to restore a positive credit score in the International Forex markets and International Monetary Fund. As a result, it became increasingly difficult for small businesses to operate in the Japanese market. Investors ventured into different markets while importing goods and products from Japan. This slowed the Yen’s circulation lead to the continuous depreciation of its value and viability to carry trade in the forex markets. In any economy, the financial and capital markets guarantee security for a business’s growth from the ground up. Although Japan is a mature economy lack of rigid financial and capital markets for small businesses in Japan led to the closure of small businesses with immediate effect. Although the Japanese economy is making major setbacks, the economy still ails due to the structural problems deep-rooted in the system.
According to the Bank of Japan, Keynesian public investment was a strategic model to restore the glory and honor of the once modest economy but failed to revive the economy and aided in deteriorating the recession. However, the Keynesian public investment’s minimal gains were set back by the March 2011 earthquakes and Tsunamis that struck Japan’s island. Conversely, on 17th March, the Yen bounced back and charted the foreign exchange markets. However, many bullish reports projected that many Japanese investors would liquidate their cash to cover the Tsunamis extensive damages. Amidst the crisis and turbulence, the Yen reached an all-time high of 76.25 yen against the dollar, although eventually falling back as the economy diverted from the stock market to the foreign exchange. However, according to the Bank of Japan, a currency surge happened due to speculation of the urgent intervention Government and Japanese investors would act upon to stabilize the situation. Economists argue that Forex market critics and speculators expected Japanese investors and companies to sell foreign assets or repatriate cash from abroad to cater to the Tsunami damages. As a result, this would strengthen the Yen against all currencies, and the demand for the Yen would increase dramatically. Additionally, foreign investors’ yen demand increased due to meet margin calls for Japanese shares plummeted in recent days (Izumi, Goto, & Matsui, 2010).
Since the boom-bust fluctuations of the real estate and stock exchange in 1990, the Japanese economy has been downward spiral. The Gross Domestic Product has rapidly declined. In the wake of 2012, the country’s Gross Domestic Product was 18% higher than in 2007, much less than the G7 countries except Italy. The continuous accumulation of large debts in the budgetary allocations of the economy over a relatively long time has led to a sharp rise in the national debt. From 2007 to 2012, the overall Government debt reached an all-time high of 238% of the total GDP of 2012. This signifies the drastic increase in 171% increase of the GDP from 1990 (Ferris, & Solís, 2013).
Similarly, at the same period, the U.S. was hit by the Housing Market crash that weakened the U.S. dollar. However, compared to Japan, the depreciation was quickly reversed by the rapid eradication of the idle capacity and ventured into the new investments both home and way to regain the value of the U.S. dollar and regain its competitive power in the forex exchange market. The Central Bank played a key role in the financial startups and SMEs that are significant contributors to the economy. Following this, the U.S dollar skyrocketed in the financial markets and regained its value as the World’s strongest currency. Furthermore, to salvage the situation, the Federal Government set up temporary aids such as the famous Federal Reserve Swaps, qualitative and quantitive easing to offset the system’s deficits. U.S. economy provided favorable interest rates to attract a large pool of savings in the local banks and regain the American population’s trust and confidence. On the other hand, Japan’s economic restoration took a relatively long time due to the Government’s changing shifts, structural issues ranging from monetary policies, real estate bubble, and natural disaster. (Izumi, Goto, & Matsui, 2010).
Also, in 2012 the demand-supply matrix is still grappling due to the continuous depreciation of the Yen. The demand-supply relationship influences the wage-price behaviors, monetary policies, rules and regulations, and consumer spending habits. With the ailing demand relationship in the balance trade, it became increasingly difficult for the Yen to regain its value and viability in the carry trade. This, in turn, reflects the structural problems ailing the Japanese economy due to the existing policies and monetary tightening in the business environment that limits manufacturing, labor, investment, causing many businesses to venture into new markets. As a result, the Yen depreciates and becomes a commodity currency as the U.S. dollar gains value and strengthens. With the continuous business withdrawal from the Japanese market, the Yen continued to plummet in the foreign exchange markets. As the Yen weakens, the neighboring countries capitalize on the weak dollars to purchase Japanese shares, import goods while the export sector lags in extensive custom fees and taxes. With limited capitalization from the Central bank based on Basel capital requirements, Japan could not meet the demand and supply matrix. While speculators expected that the Yen’s continuous depreciation would improve the country’s trade balance, it deteriorated for specific goods (Bahmani-Oskooee, & Hegerty, 2009). The rising import prices and fixed quantities cause the trade balance to shift in the near-term. However, the Yen’s depreciation causes the trade balance to improve for approximately one-third of the Japanese industries (Jaussaud & Rey, (2012).
As of 2012, the Japanese yen was still plummeting as the economy has not yet regained from the severe economic recession. The country is still grappling with structural reforms and massive debt. Deflation poses major threats to economic growth. Although the current leadership has imposed Quantitative easing policies, they are yet to close the ever-changing landscape of deflation and inflation. Currently, the Japanese Government has leveraged innovation and technological advancements such as robotics and Artificial intelligence to meet workers’ demand in the labor and manufacturing sectors. However, the country has a long way to restore the Yen’s value and viability to carry trade. Conclusively, the forex market is a highly volatile and competitive environment that dictates every currency’s value against the U.S. dollar daily. It is uncertain whether the yen exchange rate’s future with the complex political-economic and natural events occurs.
References
Bahmani-Oskooee, M., & Hegerty, S. W. (2009). The Japanese–U.S. trade balance and the Yen: Evidence from industry data. Japan and the World Economy, 21(2), 161-171.
Ferris, E., & Solís, M. (2013). Earthquake, tsunami, meltdown—the triple disaster’s impact on Japan, impact on the World. The Brookings Institution.\
Hao, J. Z. C. (2009). The Study on the Exchange Rate of Major Currency Based on Interest Rate Parity [J]. Journal of Financial Research, 8.
Izumi, K., Goto, T., & Matsui, T. (2010). Analysis of financial markets’ fluctuation by textual information. Transactions of the Japanese Society for Artificial Intelligence, 25(3), 383-387.
Jaussaud, J., & Rey, S. (2012). Long‐Run Determinants of Japanese Exports to China and the United States: A Sectoral Analysis. Pacific Economic Review, 17(1), 1-28.
Smil, V. (2012). Japan’s Economy in 2012: Multiple Challenges. URL: http://apjjf. Org/2012/10/24/Vaclav-Smil/3768/article. Html (дата звернення: 21.04. 2016).
Analyze foreign exchange and investment and the effects each nation’s economy has on another nation’s economy
Abstract
This paper assesses the economic, political, and natural factors influencing the Japanese yen fluctuations against the U.S. dollar in the foreign exchange between 2007 to 2012. The economic recession marked the beginning of structural issues culminating in 2007. The Japanese exchange market was further exacerbated by the rapidly aging population and the strict banking regulations enacted in the early 1990s. Also, the Basel Capital requirements curtailed entrepreneurship, innovation, technological advancements that contribute to economic growth. This slowed the Yen’s circulation led to the continuous depreciation of its value and viability to carry trade in the forex markets. The paradigm shift changes in the trade changes cause depreciation of the Yen against the U.S. dollar. However, the Keynesian public investment’s minimal gains were set back by the March 2011 earthquakes and Tsunamis that struck Japan’s island.
Conversely, on 17th March, the Yen bounced back and charted the foreign exchange markets. In summary, the forex market is a highly volatile and competitive environment that dictates every currency’s value against the U.S. dollar daily. It is uncertain whether the yen exchange rate’s future with the complex political-economic and natural events occurs.
Keywords: Yen, U.S dollar, Foreign exchange market, Basel capital requirements, Keynesian public investment, Forex markets
Analyzing yen fluctuations
Introduction
A country’s currency determines the exchange rate in the forex exchange market. Historically the US, Canada, Italy, Germany, Japan, U.K. and, France have the strongest currencies. For decades, the U.S. dollar has been the litmus test that determines the strength of a country’s economy within its borders and beyond. According to OECD, the value of a country’s currency is directly related to its economics (CEIC, 2007). The U.S. dollar has accumulated a lot of value and viability over the years. In this regard, its appreciation pressure can affect a country’s currency’s performance, and it can be used as an indicator for predicting the exchange rate development tendencies. However, there is no correlation between the appreciation pressure and the Japanese yen’s exchange rate fluctuations (Hao, 2009). Therefore the forex market theory further upholds that all currencies should be compared against the U.S dollar to analyze and investigate its value in the forex market charts. This paper aims to discuss the political, economic factors affecting and influencing the Japanese Yen exchange rate from 2007 to 2012. To examine Yen’s exchange rate against the U.S dollar, I retrieved Yen’s performance against the U.S. dollar for five years to investigate the Japanese economy’s macroeconomics during that time. The chart below shows the Yen’s performances when it hit an all-time low to stronger than the USD dollar and achieved parity with the U.S. dollar (CEIC, 2007).
As\
As of 2007, Japan was still recovering from the most severe economic market crash ever experienced in the history of globalization and knowledge-based economies. All the modernized industrialization gains, innovation, and technology were radically were abruptly brought to a standstill. This period was marked by the beginning of slowed economic growth that led to the Yen’s weakening due to its limited business transactions. Furthermore, the Yen’s depreciation was triggered by the drastic increase in the aging population and monetary tightening policies enacted in the early 1990s. According to Smil(2012), Japan has the highest expectancy rates in the World. However, the Government of Japan stipulates that individuals should receive retirement at the age of 60 years. This increases the widening gap of workers shortage which causes low output per production every year. These policies’ yearly application exacerbates the already declining workforce, which simultaneously causes low output per production, low economic impetus on the countries’ economy. The number of older people is increasing while the younger generation is on the spiral decrease. With aged people leaving the workplace, labor and manufacturing started experiencing slowed production due to the limited workforce. As a result, companies in Japan overutilize the available workers under low wages, while some opt to outsource labor from neighboring countries at very high costs. The paradigm shift changes in the trade changes cause depreciation of the Yen against the U.S. dollar. The boom-bust fluctuations of the working population experienced in 2012 are directly linked to the Yen’s depreciation. Further, the work population crisis of 2012 reduced the Consumer Price Index beyond projected expectations as the elderly consume less than the young people. From an econometric perspective, this negatively affected the performance of the Yen against the U.S. dollar.
The following year, the Yen was still depreciating due to the prevailing issues that had dominated the economy. In 2012, the Bank of Japan passed into law the monetary tightening policies known as the Basel Capital requirements that prohibited commercial banks from lending money to small businesses. The Basel Capital requirements curtailed entrepreneurship, innovation, technological advancements that venture into new environments and positively contribute to its growth and development. Simultaneously, the Basel Capital requirements legislation greatly affected the interest rates, monetary policies, and borrowing and lending rates for businesses. The Basel 1 regulation states that all banks should retain 8% capital in their reserves to salvage the economy from the severe and prolonged economic recession in the early 1990s. Following this, Japanese banks introduced stringent policies and hefty fines to minimize small business enterprises’ lending money. In effect, the Central Bank of Japan also minimized its borrowing tendencies and capacity to restore a positive credit score in the International Forex markets and International Monetary Fund. As a result, it became increasingly difficult for small businesses to operate in the Japanese market. Investors ventured into different markets while importing goods and products from Japan. This slowed the Yen’s circulation lead to the continuous depreciation of its value and viability to carry trade in the forex markets. In any economy, the financial and capital markets guarantee security for a business’s growth from the ground up. Although Japan is a mature economy lack of rigid financial and capital markets for small businesses in Japan led to the closure of small businesses with immediate effect. Although the Japanese economy is making major setbacks, the economy still ails due to the structural problems deep-rooted in the system.
According to the Bank of Japan, Keynesian public investment was a strategic model to restore the glory and honor of the once modest economy but failed to revive the economy and aided in deteriorating the recession. However, the Keynesian public investment’s minimal gains were set back by the March 2011 earthquakes and Tsunamis that struck Japan’s island. Conversely, on 17th March, the Yen bounced back and charted the foreign exchange markets. However, many bullish reports projected that many Japanese investors would liquidate their cash to cover the Tsunamis extensive damages. Amidst the crisis and turbulence, the Yen reached an all-time high of 76.25 yen against the dollar, although eventually falling back as the economy diverted from the stock market to the foreign exchange. However, according to the Bank of Japan, a currency surge happened due to speculation of the urgent intervention Government and Japanese investors would act upon to stabilize the situation. Economists argue that Forex market critics and speculators expected Japanese investors and companies to sell foreign assets or repatriate cash from abroad to cater to the Tsunami damages. As a result, this would strengthen the Yen against all currencies, and the demand for the Yen would increase dramatically. Additionally, foreign investors’ yen demand increased due to meet margin calls for Japanese shares plummeted in recent days (Izumi, Goto, & Matsui, 2010).
Since the boom-bust fluctuations of the real estate and stock exchange in 1990, the Japanese economy has been downward spiral. The Gross Domestic Product has rapidly declined. In the wake of 2012, the country’s Gross Domestic Product was 18% higher than in 2007, much less than the G7 countries except Italy. The continuous accumulation of large debts in the budgetary allocations of the economy over a relatively long time has led to a sharp rise in the national debt. From 2007 to 2012, the overall Government debt reached an all-time high of 238% of the total GDP of 2012. This signifies the drastic increase in 171% increase of the GDP from 1990 (Ferris, & Solís, 2013).
Similarly, at the same period, the U.S. was hit by the Housing Market crash that weakened the U.S. dollar. However, compared to Japan, the depreciation was quickly reversed by the rapid eradication of the idle capacity and ventured into the new investments both home and way to regain the value of the U.S. dollar and regain its competitive power in the forex exchange market. The Central Bank played a key role in the financial startups and SMEs that are significant contributors to the economy. Following this, the U.S dollar skyrocketed in the financial markets and regained its value as the World’s strongest currency. Furthermore, to salvage the situation, the Federal Government set up temporary aids such as the famous Federal Reserve Swaps, qualitative and quantitive easing to offset the system’s deficits. U.S. economy provided favorable interest rates to attract a large pool of savings in the local banks and regain the American population’s trust and confidence. On the other hand, Japan’s economic restoration took a relatively long time due to the Government’s changing shifts, structural issues ranging from monetary policies, real estate bubble, and natural disaster. (Izumi, Goto, & Matsui, 2010).
Also, in 2012 the demand-supply matrix is still grappling due to the continuous depreciation of the Yen. The demand-supply relationship influences the wage-price behaviors, monetary policies, rules and regulations, and consumer spending habits. With the ailing demand relationship in the balance trade, it became increasingly difficult for the Yen to regain its value and viability in the carry trade. This, in turn, reflects the structural problems ailing the Japanese economy due to the existing policies and monetary tightening in the business environment that limits manufacturing, labor, investment, causing many businesses to venture into new markets. As a result, the Yen depreciates and becomes a commodity currency as the U.S. dollar gains value and strengthens. With the continuous business withdrawal from the Japanese market, the Yen continued to plummet in the foreign exchange markets. As the Yen weakens, the neighboring countries capitalize on the weak dollars to purchase Japanese shares, import goods while the export sector lags in extensive custom fees and taxes. With limited capitalization from the Central bank based on Basel capital requirements, Japan could not meet the demand and supply matrix. While speculators expected that the Yen’s continuous depreciation would improve the country’s trade balance, it deteriorated for specific goods (Bahmani-Oskooee, & Hegerty, 2009). The rising import prices and fixed quantities cause the trade balance to shift in the near-term. However, the Yen’s depreciation causes the trade balance to improve for approximately one-third of the Japanese industries (Jaussaud & Rey, (2012).
As of 2012, the Japanese yen was still plummeting as the economy has not yet regained from the severe economic recession. The country is still grappling with structural reforms and massive debt. Deflation poses major threats to economic growth. Although the current leadership has imposed Quantitative easing policies, they are yet to close the ever-changing landscape of deflation and inflation. Currently, the Japanese Government has leveraged innovation and technological advancements such as robotics and Artificial intelligence to meet workers’ demand in the labor and manufacturing sectors. However, the country has a long way to restore the Yen’s value and viability to carry trade. Conclusively, the forex market is a highly volatile and competitive environment that dictates every currency’s value against the U.S. dollar daily. It is uncertain whether the yen exchange rate’s future with the complex political-economic and natural events occurs.
References
Bahmani-Oskooee, M., & Hegerty, S. W. (2009). The Japanese–U.S. trade balance and the Yen: Evidence from industry data. Japan and the World Economy, 21(2), 161-171.
Ferris, E., & Solís, M. (2013). Earthquake, tsunami, meltdown—the triple disaster’s impact on Japan, impact on the World. The Brookings Institution.\
Hao, J. Z. C. (2009). The Study on the Exchange Rate of Major Currency Based on Interest Rate Parity [J]. Journal of Financial Research, 8.
Izumi, K., Goto, T., & Matsui, T. (2010). Analysis of financial markets’ fluctuation by textual information. Transactions of the Japanese Society for Artificial Intelligence, 25(3), 383-387.
Jaussaud, J., & Rey, S. (2012). Long‐Run Determinants of Japanese Exports to China and the United States: A Sectoral Analysis. Pacific Economic Review, 17(1), 1-28.
Smil, V. (2012). Japan’s Economy in 2012: Multiple Challenges. URL: http://apjjf. Org/2012/10/24/Vaclav-Smil/3768/article. Html (дата звернення: 21.04. 2016).
