Finance

The Top 5 Reasons To Invest In The Japanese Yen – Kavan Choksi Japan

The Japanese yen has been one of the most popular currencies for years. It is a safe haven currency in times of global economic crisis, according to experts like Kavan Choksi Japan.

For example, when the financial crisis erupted in 2008 and 2009, many market watchers were looking to see if Japan would ‘do something or not. When they did, stock markets went up. When they didn’t, stock markets went down.

So it’s easy to understand why the yen is so popular. Japan has a huge current account surplus, big foreign currency reserves, and low debt levels. The only way for them not to run trade surpluses would be if their domestic demand collapsed – which given the deflationary forces they are fighting, is not likely to happen any time soon.

There are many reasons why investors like the yen as well, but here are the top 5 that put it into perspective:

1) The Bank of Japan (BOJ) has already cut rates below 0% and now has an official inflation target of 2%. They have also increased the pace of their purchases of Japanese government bonds, bank stocks, and real estate funds.

2) There is a very high level of domestic investable funds that have been built up over decades due to Japan’s trade surplus and savings culture. In addition, as people grow older, they tend to save more as they worry about retirement and living costs.

3) Japan has a negative population growth rate of -0.2%. That means that the working-age population is not growing, which is great news for inflation and long-term interest rates.

4) The Japanese yen (JPY/USD) exchange rate stands at around 102to-the-dollar. That means you need very little buying power to buy the yen, given that it is trading at just 102.

5) The Japanese government has a sizable budget surplus, which gives them plenty of room for fiscal stimulus.

What does the future hold for the Japanese yen?

Investors seem bullish on Japan’s future, but this may be because they are looking at the past for answers. Japan has had strong economic growth in previous decades. However, their population is aging, and the workforce isn’t growing as much as you’d expect with such a high savings rate.

The yen will likely appreciate over time because the US and Japanese economies are heavily intertwined. However, as Japan’s economy slows down, we can expect to see a continued slide in the yen’s value because the Fed will not be able to lower rates much further.

It is important to keep an eye on China when investing in Japan, though. China has been very active in weakening the yuan for economic reasons. They want their exports to be cheaper in foreign markets, which has created a lot of volatility when watching the Japanese yen/Chinese yuan (JPY/CNY) exchange rate.

More than anything else, Japan is an export-driven economy whose biggest customers are China and the US. So if the Chinese yuan continues to strengthen, that will be a big hit on Japan’s exports and thus their economy.

Of course, if China manages to get its inflation under control and its economic growth back on track, it will have more money to spend, which would help Japan’s exports. But this is not likely to happen soon.

October 2022
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