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Introduction
Japan is the 2nd largest economy in the world with GDP valued at $4.367 trillion in 2006, and a population of 127 million. The Japanese economy has highly developed banking, insurance, real estate, retail, transportation and telecommunications industries. Its technology advanced factories produce motor vehicles, electronics equipment, machine tools, steel and nonferrous metals, ships, chemicals. Japan is the 4th largest exporter in the world behind Germany, the US, and China. However, Japan needs to import most of its energy and food as it does not have much agricultural land or oil reserves.
| Japan's Fundamental Indicators and Chart |
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| Monthly Data for January, 2009 |
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| Date | EST | Indicator | Actual | Forecast | Previous |
| 1/5 | 6:50pm |
Monetary Base y/y
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1.8% |
1.9%
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| 1/9 | 12:00am |
Leading Index
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81.4% |
85.2%
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| Central Bank Watch - Latest Bank of Japan Decision
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Actual | Forecast | Previous | Revised Form | |
| 0.10% | 0.30% | 0.30% | N/A | ||
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Provided by: Bank of Japan
The Bank of Japan cut its key interest rate to 0.1% from 0.3% Friday. It also laid out a plan to boost liquidity in the financial and corporate debt markets by buying corporate debt and expanding its purchases of government debt. It does so after laying out the dangers affecting the Japanese economy which includes a warning about a deepening recession. "Economic conditions have been deteriorating and are likely to increase in severity for the immediate future," the bank said in its statement. The cut is aimed to stimulate the economy and to help ease the appreciation of the yen, which has recently jumped to a 13-year high against the Dollar. Such a strong exchange rate makes Japanese goods more expensive abroad cutting into exports. Today's actions signal a move back towards quantitative easing, an approach now being adopted by the Federal Reserve. Instead of affecting the price of money with interest rates, the bank will now focus on increasing the quantity of money in the banking system. |
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Go to Japan's Interest Rate Fundamental Indicator Page
| Central Bank Watch - Bank Officials' Comments
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| Central Bank Watch - Latest Bank of Canada Decision
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Closely Linked to Global Stock Markets
The Japanese currency has a very low interest rate, 0.5%, and for a long time had the ZIRP (Zero Interest Rate Policy). Such a low interest rate made the Yen a funding currency for carry trade. In carry trade an investor borrows Yen to purchase assets with higher interest rates abroad. In order to purchase these assets abroad, the investor must sell the Yen and buy the local currency, thereby reducing demand for the Yen. During times of turmoil in global stock markets, investors hurry to pay back their loans in Yen, therefore strengthening the Yen.
This figure is a weekly chart, of the GBP/JPY pair. Prices moving upward favor the strength of the Pound (the top currency in the GBP/JPY quote). When prices move down they favor the Yen
(the bottom currency in the pair).
Japan's Economic Slump
Interest rates in the country are so low because the Japanese economy has battled back from an economic slump starting in 1990, after a stock market tumble. The country the had to battle deflation, which gave rise to lower wages and lower investment. In 2003, the Bank of Japan aggressively boosted the money supply to keep the yen weak. Increased cost-effectiveness in the export sector has led to business profits. Economic data, such as inflation, does not give the central bank much room to raise rates, and the country is vulnerable to a cool down in US spending and growth.