Rising Yen Could Spell Trouble for the Japanese Economy

Japanese yen in forex tradingRight now, the only major currency doing well against the U.S. dollar is the Japanese yen. This is not much of a surprise, since both are [B]safe haven currencies[/B] and these are in demand today as risk aversion rises.

While risk aversion does play its part in the gains posted by the Japanese yen in [B]forex trading[/B] on the currency market. It doesn’t tell the whole story. Nor does it tell the story of what could happen to the [B]Japanese economy[/B] of the yen continues to gain strength in currency trading.

GFT’s [B]Boris Schlossberg[/B] comments on the challenges faced due to a rising yen in FX360:

However, the biggest reason for yen’s strength tonight may have to do with an announcement by Japanese authorities that they will [B]waive taxes on repatriated profits from April 1 to help support the economy[/B]. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings.

Although the impulse behind this gesture by the Japanese government was to stimulate domestic demand by bringing capital back home, [B]the unintended consequences of this policy could result in further contraction of the Japanese economy[/B] in the second half of this year. A massive influx of capital back to Japan in September could drive the yen higher perhaps even targeting the 9000 level. This will occur just as China - Japan’s most important trading partner - is looking to limit its massive capital spending. [B]A rising yen at a time when the country’s biggest customer is looking to curb demand could spell disaster[/B] for export oriented Japanese companies as their profit margins become squeezed once again as they did in Q1 of 2009.

[B]See Also[/B]

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[li]Japanese Yen in Currency Trading[/li]Forex trading on the currency market
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