Japan economy Ahmed Alsayyah

Japan has been fighting for more than a decade to keep its economy stable and get out of their trade deficit. Although they have their own monetary policy they still can’t solve the problem of the strengthen of Yen. There are many reasons behind the appreciation of the Yen. First of all, interest rates are very low, which leads to arbitrage where investors borrow from Japan and invest in other countries that have higher interest rates. For the past decade, the Bank of Japan intervened many times in the Foreign exchange market to depreciate the Yen, but as you can see in the chart below nothing was really effective.

Japan is known for its manufacturing industry and by the currency strengthening, exporters find it difficult to keep their business running. Furthermore, the manufacturers start to close their plants and by that people lose their jobs which increase the unemployment. Other manufacturers such as Toyota to maintain its business they relocate to other countries such as USA and Mexico.

Another issue that had a negative effect on their economy was the natural disaster that japan faced and the latest and the most destructive was Tsunami in March 2011 which destroyed one of the biggest nuclear power plants in Japan. After that incident, japan started to use other sources of energy such as oil and natural gases which contributed to a negative trade balance.

Economic data:

Japan gross government debt was 220% of GDP

Japan unemployment rate as of September 2012 4.2%