A change in yen appreciation?
The below graph reflects a potential big change in Japan post-2012—has yen appreciation turned the corner as a result of post-2012 “Abenomics“? In the mid 1970’s, the U.S. dollar bought 300 yen, and by the mid-1980’s, the U.S. dollar bought 250 yen. By the end of the 1980s, the dollar had weakened substantially, and bought only 130 yen. The yen has since continued its long-term appreciation against the U.S. dollar, reaching a record of 75.74 in October 2011. Despite three decades of the yen strengthening from the 300 to the 75 level, Japan still has still managed to maintain a strong manufacturing base by increasing its level of productivity and focusing on higher value-added production goods. The yen currently stands at 98.60 to the dollar as of August 22.
Weakening yen since last election
Since the election of the new Prime Minister, Shinzo Abe, in November 2012, the yen has weakened against the US dollar from the 80 to the 100 level. Prime Minister Abe, in conjunction with Bank of Japan Governor Haruhiko Kuroda, will attempt to end the post-1990 deflationary spiral that has gripped the Japanese economy. These policies, known as “Abenomics,” will attempt to encourage private investment through a more aggressive mix of monetary and fiscal policy. As the above graph illustrates, the Japanese yen appears to have weakened considerably in reaction to these new policies.
Looking forward, what should you look for if the Japanese yen continues to weaken? We’ll discuss the following important factors.