Japan (“Nippon”) is the third largest economic power in the world, after the United States and the People’s Republic of China. These two countries are also Japan’s largest export markets. The national currency of Japan is the yen.
Japan is heavily engaged in export, and this, essentially for high quality merchandise at the cutting edge of technology. Consequently, the economy is clearly organized around research and development sector, which results in a very innovative climate where intellectual property is highly regulated and protected.
For companies planning to export to Japan, the stable banking sector and especially the Japanese yen, the Japanese national currency, strong and therefore expensive, are interesting. Therefore, exporters producing in another currency enjoy a competitive advantage over Japanese suppliers.
What is generally known about Japanese currency yen is that after the dollar and the euro, the yen is the most traded currency in the world. Payments related to Japanese contracts are generally paid on an open account. This means that suppliers deliver and customers pay within the agreed payment period without having to on guarantees or special documents.
Japan: A leadership crisis
Despite the economic strength of Japan, the yen, the Japanese currency, never assumed important international monetary role. Even in East and South-East Asia where, however, the country provides a substantial share of trade and investment in the region, the dollar has traditionally played – and still plays – a more important role.
In fact, the emergence of a so-called Asian block, of which Japan would be the angular piece until now only supported by a new role for the yen currency. The yen’s depreciation against the dollar is, to a certain extent, the reflection of a deliberate policy of Japan.
During the period before the beginning of the seventies, the value of the Japanese currency yen was fixed, in relation to the gold-dollar standard. This is that with the end of the monetary convertibility and the adoption of the floating rate policy, the yen began its rapid appreciation of the dollar.
A strong yen provided:
· Relatively low prices for that suppliers and customers
· Financing of energy and natural resources supplies necessary for Japan’s industrial expansion;
· Excess sales that always lead to larger savings;
· Large national savings that will quickly raise the problem of the overabundance of capital.
How yen changed through the history
Historically, most Southeast Asian countries maintained a parity between their currency, such as Japanese currency yen, and the dollar, which, among other things, had the effect to support economic integration by maintaining monetary parity with respect to the regional plan.
However, this quasi-fixed money regime possessed two great weaknesses within it:
1. On the one hand, weak coordination between participating countries undermined the possibilities of a coordinated approach to monetary adjustments.
2. On the other hand, Japan and other countries in the region together absorb the bulk of regional exports, which will cause significant distortions.
In the context of de facto parity with the dollar, the appreciation of the dollar to yen movement, and dollar to yen rates, which intensified from implied competitiveness.
Some governments have thus found themselves in the unfortunate position of maintaining an overvalued currency by intervening massively in the market until the exhaustion of their international reserves.
However, it did not happen to the Japanese currency yen, although in a state of panic, with speculative attacks and capital outflows, that massive devaluations will succeed and spread
from one country to another, not only in Asia but also other larger countries.
Threats implied on Japanese currency
Yen was affected by the escalation of the trade war between the United States and China. It is not surprising, the stock markets and the return of risk aversion has taken off from a safe haven for currencies like the Japanese yen, the Swiss franc and the US dollar. The safe haven qualities of
the USD stands out for several months already, the reserve currency global market continued to appreciate despite the advantage of US interest rates.
The weak internationalization of the yen-slowed movement by the Japanese government – also pushes Japanese companies use the dollar as the currency of their transactions instead of their own currency yen.
Despite this “real” appreciation of the Japanese currency yen, Japan’s trade surplus with EU member countries has very strongly inflated in recent years. In particular, this surplus vis-à-vis Germany was higher; with respect to overall, the progress was only slightly lower. It is true that bilateral trade balances do not completely describe the situation, but in third markets the
Japanese exporters also performed well compared to those from their competitors.