Appreciation of the Yen Dragged Down Japan's Economic Recovery

Earlier this month, the international foreign exchange market, the yen-dollar exchange rate has been hovering at a high level, and at 24, once a breakthrough level of 83 to 1 for 15 years and two months since a new high. Affected by this, the Tokyo stock market Nikkei index has also fallen below 9,000 point mark. Sharp appreciation of yen to the Japanese export enterprises and therefore bring no small impact on drag Japan's economic recovery.

For a long time, Japan's economic growth is mainly driven by external demand. 2010 fiscal year (April 1, 2010 to March 31, 2011), Japan's export-oriented enterprises in the forecast level of annual results, expected exchange rate mostly in the 87-90 yen to 1 U.S. dollar. According to statistics, the Japanese yen against the U.S. dollar rose 1 yen each, only Toyota, Honda and Nissan and other major automobile manufacturers 7-year profit will be reduced 70 billion yen. Long-term if the yen exchange rate remained at a level of 85 to 1, the Japanese export profits will drop significantly, which will drag on Japan's economic recovery.

In response to yen appreciation, Japanese companies will be taken to the transfer of production bases overseas, or increase capacity of existing overseas bases, and increase the proportion of imported components from overseas and other measures to ensure the benefits. As a result, the hollowing out of domestic industry in Japan will be even more serious problem, affecting its national employment and income, thereby affecting the domestic consumption in Japan, so Japan out of deflation has become more difficult.

METI survey the implementation of the emergency, if the yen against the U.S. dollar continued to maintain a level of 85 to 1, about 4 percent of the manufacturing plant and research and development companies will shift to overseas bases, about 6 percent of the manufacturing enterprise will increase the proportion of overseas production. In addition, about 7 percent of subcontracting SMEs and about 8 percent of enterprises will suffer losses. The recent appreciation of the yen against the dollar and euro, respectively, about 6 percent and 5 percent of manufacturing firms to suffer.

The soaring yen exchange rate, including the Prime Minister, Naoto Kan of speech, including senior officials have to intervene, but the effect is minimal. All sectors of government and the Bank of Japan in the exchange rate does not take action on the slow disappointed, have urged the Japanese government and central bank to take measures to prevent further appreciation of the yen. Under pressure, Naoto Kan instructed relevant departments to develop countermeasures, and talks with business circles to discuss countermeasures.

Keidanren, Chamber of Commerce, Friends of the economy with the head of the three major economic groups in talks with Naoto Kan, said the current enterprise on its own appreciation of the impact of the yen has been difficult to digest. They urged the government and central bank market intervention operation quickly.

In urging the outside world, the Japanese government finally decided the original plan drawn up in early September ahead of the relevant countermeasures to 31 of this month the Bank of Japan is also considering the scheduled September 6 and 7 meeting, held ahead of monetary policy decision-making .

Japanese government proposed economic measures mainly related to employment, consumption stimulation, SME assistance, and enhancing local economic dynamics, but also includes graduates employment assistance and residential points to extend the environmental protection system. Bank of Japan may take measures to further relax monetary policy mainly, through the "new open operation" injection scale of the market from the current 20 trillion yen to expand to 30 trillion yen in the period from 3 months to 6 months .

However, the financial position of the government side, the Japanese can take the stimulus is very limited. If the introduction of massive economic stimulus package, only the issuance of bonds. However, Japan's national debt has nearly twice the gross domestic product, additional debt will worsen the financial situation, the goal to achieve financial viability within the foreseeable future. Bank of Japan monetary policy from the current perspective, not many measures can be taken. Funding to expand the market size is only boost business confidence, can achieve the purpose to promote the exchange rate drop is hard to say.

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Article Added on Monday, January 9, 2012

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