Just when we thought that the value of the yen would drop due to the tremendous damage that the major earthquake disaster had on the Japanese economy, the yen reached its highest prices against the dollar since the war. This unpredictable way of fluctuation of the yen has a charm reminiscent of a woman who makes you want to know her better all the more because she is hard to know well.
Therefore, rather than considering about the changeable yen-dollar exchange rates in the immediate future, I would like to look at where the yen-dollar rates are headed in the long term by clarifying the yen’s present situation in the international financial markets as well as the situation the yen will face in the future.The Yen—The Third Currency
Basically, Japan’s private sector surplus is by far the biggest in the world, and this provides a sense of security for the time being. That surplus money was accumulated from the previous stages of economic development, however, and we cannot deny that these surpluses will greatly decrease and Japan will have to depend on funds from overseas for filling in the budget deficit when considering the declining birthrate and growing proportion of elderly people, and the stagnation of economic development. Therefore, financial reconstruction must be made quickly before such a situation raises international anxiety and the yen plunges. In order to do this, taxes must be increased. In addition to reducing the budget deficit, distributing a portion of the revenues from tax increases to newly emerging industries including renewable energy with the aim of achieving further sustainable economic growth will help raise the value of the yen in the true sense. With Japan’s technological capabilities, I believe that sustainable development in such earth-friendly fields is certainly possible, and I also feel that this is something that we most certainly should have faith in.
About the authorYoshihiro Kitamura
Latest paper: "The impact of order flow on the foreign exchange market: A copula approach" (2011) Asia-Pacific Financial Markets. Volume 18, Number 1, 1-31
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