The Yen And Foreign Exchange Trading

Posted by admin 05/02/2014 Comments are off 445 views

Foreign Exchange

This article looks at the factors affecting the stability of the Japanese yen in foreign exchange trading.

To ensure that you trade effectively, it is vital that you have a clear understanding and knowledge of the major currencies in this financial market.  You should understand the economic statistics for the country in your currency pair.  You also need to know if there are peculiarities related to the currency.

Foreign Exchange and the Yen

Approximately 80% of the transactions in the foreign exchange market include the seven major currencies.  The Japanese yen falls into this category and is one of the largest with regard to international trade and foreign exchange.  It boasts a very high gross domestic product and is one of the largest global economies.  Japan is one of the leading exporters, in terms of dollars.

The central bank of Japan, the Bank of Japan, has a mandate which states that it should perform its duties in a manner that will encourage growth and maintain a low inflation rate.  This has made deflation a threat to this country for many years.  The central bank has managed to maintain the low rates in an attempt to stimulate the economy and demand.

Economic Health of Japan

The economy of the country has peculiar attributes.  The country suffered a collapse in their real estate industry and it has not seen much growth since.  The growth in the country during the ten-year period from 2001 to 2011 has very rarely exceeded 2%.  In fact, this figure has dropped down to zero and has reached negative figures.  The country is noted for the lack of inflation and it has experienced deflation for the better part of the past ten years.

The Japanese apparently suffer from an extremely low fertility rate and this is evident in its aging workforce.  This also means that they do not have sufficient younger workers to support the economy.  They experience difficult demographics as the country is averse to immigration.  The workforce is exceptionally well-educated.  Certain industries have been moved to South Korea and China, although Japan is still tops in the automotive, technology and consumer electronics manufacturing fields.  This opens the country up to the global economic market, but it relies very heavily on China for trade.

Factors that Impact on the Yen

Not only has the Bank of Japan managed to keep interest rates low since the collapse of the property market, it has also aided in the sale of their currency to help in maintaining competitive export prices.  This affected the country on a political level and the central bank is now very hesitant to become involved in the foreign exchange markets.

The balance of trade has had a huge impact on the policy and foreign exchange rates of the central bank.  The country indicates large trade surpluses, however it carries a large public debt and the aging population is a huge negative.  The main advantage to the country is that most of the public debt is from within the country’s borders and the local investors are not too perturbed by the low level of return on their investments.

It is possible that the yen will eventually be affected by the Chinese Yuan, although this is seen as a long term event by economists.  Its strong trade surplus could help to maintain its position as a safe forex currency.  However, the low business confidence and aging workforce, along with the rise of China in global economics, could be a massive threat to their current position.

 

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