Cheap Japanese yen improves Japanese economic growth prospects
A cheap national currency is not always a negative factor for a country’s economy; most countries artificially try to prevent excessive strengthening of their currencies.
One of the countries that is trying to reduce the exchange rate of the national currency is Japan; its Central Bank very often intervenes in the foreign exchange market.
In 2022, the Japanese yen showed a record decline against the US dollar and other world currencies.
If over the past ten years the average price of the USD/JPY was at around 110 dollars per 1 dollar, then in 2022-2023 the situation changed significantly and the quote reached a 24-year high.
How does this situation affect the Japanese economy?
Export development:
One of the main advantages of a cheap Japanese yen is to stimulate exports. With a cheap national currency, Japanese goods and services become more competitive in the world market.
This could lead to an increase in Japan's exports and an improvement in the country's position in international trade.
Export companies have received additional profits, which contributes to economic growth and the creation of new jobs.
Decrease in imports:
If Japanese goods become cheaper in international markets, then, accordingly, imported goods rise in price in the Japanese domestic market and lose competitiveness.
This situation stimulates the development of import substitution; it becomes more profitable to produce such goods within the country than to import them from abroad.
Accordingly, new factories and factories are opened, new jobs are created and unemployment is reduced.
Tourism and services:
The cheap Japanese yen has a positive impact on the tourism and service industries. The low exchange rate makes Japan more accessible to foreign tourists.
The tourism sector can expect an increase in visitor numbers, which will lead to more cash flowing into the economy.
A large number of tourists leads to the development of the service sector, the hotel and restaurant industry, retail trade and entertainment. This can create new business opportunities and promote economic growth in these areas.
Investments and development:
A cheap Japanese yen could also attract foreign investment into Japan. Foreign investors may find investing in Japan more attractive because their funds will be worth more in local currency.
Confirmation of this fact was the recent increase in investment by Berkshire Hathaway, owned by Warren Buffett .
Buffett more than doubled his investments in Japanese companies such as Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. Which only confirms the positive trend in the Japanese economy.
The current situation serves as a signal to buy Japanese securities; with a high probability, these assets will bring profit during 2023-2024. The shares of Toyota, Sony, Mitsubishi, Canon Inc, Seiko Epson Cor and other companies producing goods for the foreign market have good prospects.
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