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Fundamental Review of the Japanese Yen

Fundamental Review of the Japanese Yen

In the Forex market, the winner is the one who has the most classified information and can consider various factors instantly at the moment of deciding to trade. Currency pairs ending in the Japanese yen on one side have a certain savagery in the market, and a large percentage of veteran traders acknowledge this. So let’s talk a little bit about this volatile currency.


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Introduction of Japanese Yen

The seven international currencies account for more than 80% of the world’s trading volume, of which the Japanese yen is one. Of course, this is not surprising, because by digging into the international economy, we can see that Japan is the third largest GDP in the world and the fourth largest exporter in the world.

All currencies traded in the Forex market have the support of the Central Bank of their country. In this case, too, the yen is backed by the Bank of Japan. Like all central banks in developed countries, the Bank of Japan aims to increase growth and development while reducing inflation. Of course, Japan has been grappling with negative inflation for many years, which may not mean familiarity to some people.

When we talk about inflation, we mean positive inflation, that is, prices rise by a certain amount over a period of time. For example, a house that can be purchased this year for 100 thousand dollars, next year you have to spend 103 thousand dollars to buy it. But in Japan, as in Switzerland, we see negative inflation. That is, the value of money is increasing. This means that a house that can be bought for $ 100,000 this year will be available for $ 98,000 next year, for example! This may seem like a very good phenomenon to the average person without high economic literacy, but it does not have negative or positive inflation! Both create problems for the country’s economy and its currency.

The economy behind the Japanese yen

Despite the large size of the yen economy, Japan is experiencing a significant slowdown in growth, especially after the housing bubble burst. Some experts use the term “lost decade” to describe Japan’s situation, as from 2001 to 2011 their annual growth barely exceeded 2% and has even been zero and negative several times.

Japan’s current problem is the absence of inflation, or negative inflation. Japan is also one of the world’s oldest developed economies with a low birth rate. Thus, the average age of the labor force in this country is always increasing and it imposes a lot of costs on the government to provide for the livelihood of retirees. On the other hand, the door to the country is closed to immigration, which doubles the same problem, because a young and efficient workforce cannot enter the country.

What affects the Japanese yen?

There are various theories that justify the movements of the international currency market. Purchasing power parity, interest rates, Fisher efficiency, and balance of payments provide explanations for the appropriate exchange rate based on factors such as relative interest rates, prices, and so on. In practice, these models do not work particularly well in the real market – the real market exchange rate is determined by supply and demand, which includes various factors in market psychology.

Major economic data include GDP, retail, industrial production, inflation and trade balance. These come at regular intervals, and many brokers, as well as many sources of financial information such as the Wall Street Journal and Bloomberg, make this information freely available. Investors should also consider information on employment, interest rates (including scheduled central bank meetings) and the daily flow of news. Natural disasters, elections and new government policies can have a significant impact on the exchange rate.

In the case of Japan and the yen traders, the Tankan report is particularly noteworthy. Many countries report business trust information, and Tankan is published once reported by the Bank of Japan. Tankan is seen as a very important report, often trading in Japanese stocks and currencies – and trading data is also important for the unusual yen.

Carry Trader

In many cases, BOJ policy is trading around the world. The transportation business refers to borrowing money in a low-interest environment and then investing it in assets higher than in other countries. With an announced interest rate policy close to zero, Japan has long been the main source of capital for that trade. This means that talking about higher rates in Japan could boost foreign exchange markets.

Predicting exchange rates is generally very difficult, and most models rarely work for more than short periods. While economics-based models are rarely useful to short-term traders, economic conditions are emerging.

Japan’s strong trade surplus is likely to maintain the country’s current position as a relative haven for a long time, but the aging workforce, consumer confidence and low self-esteem, and China’s growing importance as an economic rival, this position. Threatens.


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