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  • 2019.11.11 Monday
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  • by スポンサードリンク

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Strong Yen of Weak Japan

 On September 15th, Japan intervened in its currency for the first time in six years. However, I support free-markets, and furthermore, I’m proud of a strong yen.  Japan’s authorities started buying dollars and selling yen soon after the dollar hit a new 15-year low of 82.87 yen. The U.S. dollar rose against the yen, so did other currencies such as the euro, the Korean won and the Chinese yuan. Still, I don’t believe the intervention can stop the rising-yen trend.  

 Compared to other developed economies, Japan is highly reliant on exports to drive its growth. Therefore, its exchange rate has a greater impact on its economy. Before 2004, Japan conducted several currency operations to boost its export sector. In 1995, when the yen hit a high of 79.75 against the dollar, Japan’s intervention was effective. Within a month, the yen weakened 8% and by the end of 1995, it weakened 23%. A U.S. economy recovery at the time reinforced the dollar’s rebound against the yen. This time, however, the U.S. economy is dormant, even more wounded than the Japanese economy.  

 Unilateral currency intervention, once a common tool among industrialized economies, fell out of favor in recent years, amid a perception that mercantilism is unfair to trading partners and ineffective over the long term. Daily trading in the dollar-yen market is now $568 billion, a 73% increase from when Japan last intervened in 2004. Japan needs a lot more firepower to weaken the yen. The policy of intervention faded not only because of a preference for free-markets but also because the foreign-exchange market has grown so much bigger. The U.S. used to be proud of its strong dollar. However, the same as other countries, the U.S. weakens its currency to boost the competitiveness of its exports. In 1971, when President Nixon went off the gold standard, the U.S. dollar converted form hard money to a paper currency. Still, it has maintained its status as the dominant currency. Now, however, it is becoming one of several major currencies in the world.  

 At present, the yen is the most highly valued currency in the world, higher than the dollar and the euro. It’s unlikely that the yen will become the dominant currency. However, for the time being, the yen will keep its status as the top currency in the world. I believe that the U.S. and EU members will take a decade to recover from the bubble. During this period, there is a reasonable chance for the yen to prevail in global trading. The more the yen prevails, the easier it becomes to circulate Japanese products.  

 The problem is, as the yen strengthens, Japanese manufacturers might relocate their production lines overseas. The Japanese government must hasten lower corporate taxes which are the highest among the major countries in the world.  

 Moreover, we must be alert to China which has used its currency reserves to buy $27 billion in Japanese bonds and other securities. The critical point is not that this is underpinning the yen’s rise but that China might become able to affect Japan’s financial situation while Japan cannot exercise its clout on U.S. policies even though Japan owns large share of U.S. bonds to affect the U.S. The Japanese government is too weak and incompetent. It depends on policies as to whether the strong yen will lead to a strong Japan or not.

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  • 2019.11.11 Monday
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  • 16:24
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  • by スポンサードリンク

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