Cheaper yen means higher sales expectations for Japanese manufactures in general. In fact, Japanese automakers are especially optimistic because a cheaper yen will reduce the cost of their autos in terms of other currencies and help them to become much more competitive in the global market.
Last December, Japan’s prime minister Shinzo Abe promised to weaken the currency and create more government stimulus in attempt to fight deflation and re-flate Japan’s economy. The new BOJ leadership, installed by Mr Abe, are following through – announcing plans to double the amount of yen in circulation. Although, this plan is in the very early stages, given a 20% plunge against the dollar, and rosy forecasts from the Japanese automakers, there are some positive signs already that the plan may be working. Furthermore, the exchange rate changes will have an even greater impact on Japanese manufactures like Mazda, who make majority of their products in Japan. Mazda’s shares are up 90% this year! Is this the new world of cheap money or should we return to fixed exchange rates?
each country has its own exchange rates for a reason. We switched from the Bretten Wood system because all exchange rates being fixed failed. The fixed exchange rate system fails on a global scale because if one country suffers they all do. We have been able to see this in the recent euro crisis. China has the freedom to use these exchange rate policies because it wants to increase their exports. This new policy just makes them more competitive on the global market.
ReplyDeleteI agree that each country has different strengths and because of this they cater to different exchange rates, however, I believe this can be distorting and in the long run harm countries. For example in Japan, the re-inflation of the Yen may be good for manufacturers in the short run, but what effect will an increase in inflation have on investment? What are the long-term ramifications in vesting the countries prosperity in a particular sector? I agree this is paying off for Japan now, and it is nice to see some real leadership in Japan but I am skeptical this move will pay off in the long run.
ReplyDeleteMary I like the way you you answered the reasons why fixed exchange rates don't work. With one country suffering they all do. The euro crisis is a great example, so true! Also, Paige I think you make a great point as well. By printing more and more money, distortions will occur. By making the yen incredibly cheap it gives a false sense of growth. I could be completely mistaken, but isnt this one of the reasons the Depression occurred in the 1930s? Anyhow, I think most definitely for Japan this is a real short term way to add growth, but I think long term this can lead to inflation and lack of investment.
ReplyDeleteI agree with Caroline on this issue. Messing around with either the exchange rate or the money supply have risks, and both have lead to financial crises. However, I think that printing more money will have the least positive effect in the long run due to the distortion that it will create in the market. What is most important right now is to make the Japanese market something worth investing in.
ReplyDeleteI don't think that it is a good idea for japan to artificially deflate their market by increasing the money supply. While Japan has pursued export lead growth for decades now their economy has stagnated because it seems that they have ignored problems that have surfaced such as their declining population. While exports can certainly help an economy grow, they are not necessary for growth. For example if we think about the entire earth as a closed economy that doesn't export to other planets there is still high amounts of growth on earth. This shows that instead about the value of their exports Japan should probably look to correct their domestic market which has been distorted by strategic investment in exporting sectors. This will hopefully help turn around the declining population and shrinking economy.
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