Forex Blog Articles

What You Should Know About the Japanese Guppy Yen (JPY)

October 25, 2020 | 12:00 pm | Forex Blog Articles
October 25, 2020 | 12:00 pm
Forex Blog Articles
What You Should Know About the Japanese Guppy Yen (JPY)

A Close Look at the Japanese Yen

GDP per capita is 22nd in the world, the Japanese Guppy Yen is the 3rd most valued currency in the world after the USD and EUR. The economy is very strong and quite diverse, with large exports in automobiles and a very healthy manufacturing sector. In addition to these powerhouse sectors, the country is regarded as one of the most innovative countries in the world, consistently producing breakthroughs and cutting edge technological developments.

In recent years, Japan has shifted its focus to high-tech and precision goods as a way to maintain economic competitiveness with China and South Korea. This powerful economy makes the Japanese Yen a favorite currency for many traders in the forex market. 

 

JPY Trends: A Look at Recent History

Stretching back to 1973, the Japanese government has upheld a policy of currency intervention in order to direct or change the pace of the Yen. This economic policy is commonly referred to as a “dirty float” regime. 

In the decades after the destruction caused by WWII, the Japanese government made a full focus on becoming competitive in the export market and worked hard to guarantee a low exchange rate for the Yen. This was primarily achieved through a trade surplus. 

In 1985 the exchange rate took a sharp fall in the wake of the Plaza Accord. Just prior to the accord, the rate was 239 JPY to 1 USD. After the accord, the rate was 128 JPY to 1 USD. In 1995, the JPY hit a peak rate of 80 JPY to 1 USD. Since then, however, the value has decreased and the Japanese government maintains a policy of near-zero interest rates coupled with a rigid anti-inflation policy.

 

How the COVID-19 Pandemic Affected the Japanese Yen

Like most countries around the world, COVID-19 pandemic hit the Japanese economy hard. As cases were rising in April, the government declared a state of emergency and put strict public health measures in place. Naturally, these limitations impacted the economy and led to a 20% reduction in overall economic activity compared to April of 2019. 

Due to swift and decisive actions, the limits in April led to reopening in May. However, since the initial impact on the economy was so severe, May ushered in a recession and the economic situation is likely to remain quite dire in the near future. Some predictions see the situation improving towards the final months of 2020, however, all of these predictions come with great uncertainty, as many fear another wave of the virus will push the Japanese economy back down. 

 

 

JPY Rates: Impact on Businesses and the Economy as a Whole

While the Japanese Guppy Yen (JPY) and the overall Japanese economy took a big hit in the early stages of the pandemic, the economy shows signs that it may be moving back to pre-pandemic levels. While certain industries took a hit, there were a few, mainly small businesses that benefited during the crises. In Japan, only 10% of small businesses shuttered during the pandemic, compared to an average of 26% for their global peers.

The pandemic also resulted in a large push to bring back businesses that had over the years shifted their operations to China. 

Here are a few of the industries are poised to succeed in a post-COVID Japan:

  • Automobile industry. As part of the government’s aid package to struggling businesses, a large portion of the money was set aside to bring Japanese auto manufacturing back to Japan from China. If these automakers can reduce their dependency on manufacturing in China, it would be a huge boom to the Japanese economy. 
  • Emergency goods such as masks sanitizers, etc. China is Japan’s largest trading partner and such, Japan relies on China for most of these products. In the wake of the outbreak, Japan has begun to open up manufacturing plants for these types of goods in order to supplement the supplies they previously relied on from China.
  • Small businesses. Due to a variety of different economic measures, small businesses in Japan have proven to be more resilient than those in other countries. Non-interest and unsecured loans have helped many stay afloat while medium to large businesses have struggled. 

 

What Does the Future Hold for the Japanese Guppy Yen (JPY)?

The massive contractions that the Japanese economy experienced in the wake of the April and May shutdowns will not give way overnight. Experts predict up to three or more years of painful recovery to offset the strong nosedive. The impact on the economy was quite similar to the recession of 2008 and experts predict a similar path to recovery. However, because the economy was able to open up shortly after shutting down, the worst might have been staved off. Japan’s good performance in controlling the virus is a key indicator that the economy might be in better shape to recover faster than its global peers. 

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