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Japanese Currency

The Japanese Yen: Finally in our economic tour of the world's currencies, wecurrency trading online forex anna are going to take a look at the Japanese currency, the Yen.

Japanese Currency : The Japanese Yen

An economic miracle, Japan's success has been based largely on government and industry co-operation, a strong work ethic, a mastery of high technology and a comparatively small allocation of GDP to defence ( less than 1%). Japan currently ranks as the fourth largest economy in the world after the US and China who are its largest trade partners. In the 70's and 80's the economic growth was spectacular. This growth slowed dramatically in the 1990's largely as a result of over investment in the 1980's and domestic government policies designed to create economic growth based on speculation in the financial markets and property, rather than in construction and manufacturing ( largely what is happening currently in the UK).  This lead to a banking crisis from this 'bubble economy' and a collapse in stock markets and real estate values, with a huge increase in bad debt and company closures. The Government and the Central Bank are still trying to recover from this crisis, having introduced the lowest interest rates in the world in order to rebuild confidence.

Japanese Currency : Japanese Economy

Being the world's fifth largest exporter Japan consistently has a trade surplus which in turn creates demand for the Yen. Japan's major exports include cars, electronic equipment, plant and machinery, shipping,  chemicals and textiles. They are also a world leader in robotics and have revolutionised manufacturing plants around the world with robotic technology increasing both output and efficiency. Being a small, densely populated country, Japan is highly dependent on imports of natural materials and fuel. Following the economic and banking crisis of the 1990's, many of the country's banks are now supported by the Government, who have provided unlimited funds to prevent any banks going bust, and a subsequent collapse in consumer confidence. Monitory policy is set by the Bank of Japan ( BOJ ) which is responsible for maintaining stability and relaying the foundations of a stable economy and banking system. The bank meets monthly, in the middle of the month. Any policy statements indicating concern over inflation will suggest an increase in interest rates, and conversely more positive statements make this less likely.  

Japanese Currency : Factors Affecting The Yen

As a result of the banking crisis in the mid 1990's which still continues today, the BOJ can be instructed by the Minister of Finance to intervene in currency markets to buy or sell the yen against other currencies. Of all the banks in the developed world, the BOJ has the most interventionist policy of any central bank. In particular the BOJ will watch three key elements. Firstly the strength or weakness of the Yen, secondly the USD/JPY rate, and finally the levels and direction of speculation in the currency. One of the major factors affecting the Yen is Japans interest rate, which is virtually zero. As a result it is the primary currency sold in the carry trades of currency speculators around the world, inherently weakening the currency further. The currency can be particularly volatile when the US markets are open. The currency is also moved by instability in other Asian or Far East economies.

Japanese Currency : Major Economic Indicators
Interest rates - Naturally these can cause major moves in the currency. Often considered a blunt instrument, their effect in the market may last only a few hours or days, before the trend continues unbroken. Japan's low interest rates seem set to continue for some time to come.
GDP - GDP is a classic lagging indicator and foremost in reporting on the health of the economy as it measures how fast or slow the economy is growing. The figures are released quarterly as expenditure based estimates with the headline figures being annualised changes in real and nominal GDP.
Tankan Survey - The Tankan survey is a report which is released quarterly by the Bank of Japan on the first Monday after the period. In essence it is an  economic survey of Japanese businesses. The report is broken up into three main elements. Firstly capital expenditure and investment in plant and machinery, secondly the Large Manufacturers Index and Outlook which presents an analysis of market sentiment from the major manufacturers, and finally a similar breakdown for the Non Manufacturing sector. The report is eagerly anticipated as it provides a view on the economy from the companies themselves.
Trade Balance - A key indicator of imports and exports and the subsequent flow of money. Japan's trade surplus has been positive for many years, and as a result currency flows into the country thereby increasing demand for the currency. This is counterbalanced by the currency speculators who are sellers! These figures are released monthly in the second week after the reporting period.

If you would like a more detailed look at the Japanese currency and it's relationship to the US dollar, I have recently published a new site which examines this pair in detail. Please just follow the link yen to dollar. Now we are going to look at another important aspect of currency trading that you need to understand - and that is correlation.

 

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