Finance, Forex and Investments

The Japanese Yen?

Japan is one of the most successful economies in the world. Yet, the Japanese Yen (JPY) is an underweight compared to the currencies of India & China. Furhermore the JPY fetches interest rates (Bank deposits) which are meagre. For instance, the JPY attracts 0.15% for a tenure of 366 days in India; as opposed to 4.9% for the USD. I would like to know why this is so. Regards, Vinay

Public Comments

1. Actually, the Japanese economy is the second-highest worldwide. They're still in a recession right now, though: "A factor influencing the slow recovery of the Japanese economy was the sharp rise in value of the Japanese yen, which went from 145 yen per U.S. dollar in 1990 to an all-time high of 79.75 yen in April 1995. Although the yen has since retreated relative to the dollar, the steep rise impelled many Japanese companies in key export industries, notably electronics and automobiles, to shift production overseas. Manufacturers of such electrical products as TVs, VCRs, and refrigerators opened assembly plants in China, Thailand, Malaysia, and other countries in Asia where work quality was high and labor inexpensive. For such products, the market share of imported goods now exceeds that of the same domestic items. This process of industrial and market globalization has resulted in increases in the export of both component parts and capital financing as well as in the import of finished goods. Even strongly competitive industries such as the automobile industry are expanding production in Europe and North America. Overseas production by Japanese manufacturers accounted for 13.8% of total production in 1998 and this figure continues to rise, although it is still relatively small in comparison with the U.S. ratio of approximately 30%."
2. To build on the answer above (which is a really good explanation of why Japan is in a recession, but not why the currency and interest rates are devalued), because the economy is stagnant, the government keeps the interest rates artificially low in an effort to discourage saving and encourage consumer spending. After all if the interest rate is lower than the rate of inflation, why save? You'll lose money, it's better to go out and spend it now on a new car, right? Also because of the recession, they have tried to devalue their currency in an attempt to attract foreign investment.