The Japanese yen (JPY) is considered to be a major currency in the Forex market. Japan has had chronically low interest rates for a decade now, and that has made it a popular target for the short side of carry trades. Japan is also quite sensitive to changes in oil prices because the country consumes a lot of oil but produces virtually no oil of its own.
Japan is the third largest economy in the world and has the second largest trade surplus(CIA.gov), which is a powerful combination.
Trade Surplus or a Trade Deficit?
Japan runs a trade surplus of S182.3 billion, giving the country a ranking of 2 out of the 190 countries tracked by the CIA in The World Factbook (CIA.gov).
What Does Your Economy Export?
Japan exports transport equipment, motor vehicles, semiconductors, electrical machinery, and chemicals.
According to the World Trade Organization (WTO)(stat.wto.org), Japan exports $580.7 billion in goods and merchandise compared to only $125.9 billion in commercial services. The WTO breaks down those exports as follows:
Goods and Merchandise
- Agricultural products: 1.4 percent
- Fuels and mining products: 4.4 percent
- Manufactures: 87.5 percent
Commercial Services
- Transportation: 25.1 percent
- Travel: 8.2 percent
- Other commercial services: 66.7 percent
To Whom Does Your Economy Export?
The WTO ranks the following countries as the top destinations for exports from Japan:
- China: 18.9 percent
- United States: 16.4 percent
- European Union: 12.5 percent
- Korea: 8.1 percent
- Taiwan: 6.3 percent
What Does Your Economy Import?
Japan imports machinery and equipment, fuels, foodstuffs, chemicals, textiles, and raw materials.
According to the WTO, the country imports $552 billion in goods and merchandise compared to only $147 billion in commercial services. The WTO breaks down those imports as follows:
Goods and Merchandise
- Agricultural products: 12.3 percent
- Fuels and mining products: 34.0 percent
- Manufactures: 51.8 percent
Commercial Services
- Transportation: 27.6 percent
- Travel: 17.2 percent
- Other commercial services: 55.2 percent
From Whom Does Your Economy Import?
The WTO ranks the following countries as the top sources of imports to Japan:
- China: 22.2 percent
- United States: 11.0 percent
- European Union: 10.7 percent
- Australia: 6.3 percent
- Saudi Arabia: 5.3 percent
Do You Have an Attractive Government Debt Market?
Japan currently has a Moody’s rating of Aaa. It received this latest rating on October 20, 2002. This most recent rating was an upgrade from the Aa1 rating that the country had held previously. This is a positive sign for the country’s government debt market.
Do You Have an Attractive Equities Market?
Japan has an attractive equities market. It is the third largest equities market in the world, with a total market value of $3.378 trillion (CIA.gov).
Central Bank Mandate
The Bank of Japan’s (BOJ) objectives are to issue banknotes, carry out currency and monetary control, and ensure the smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of stability of the financial system.
The BOJ has foreign currency reserves of $1,035,817 million and gold deposits of $34,695 million (www.imf.org).
Government Intervention in Forex
Japan’s Ministry of Finance (MOF) and the Bank of Japan do have an interventionist track record, so you need to be aware of any rumors that may start circulating regarding Japanese intervention.
Important Economic Announcements
When you are watching the economic announcements coming out of Japan, make sure that you keep your eye on the following:
- Bank of Japan overnight call rate
- Tankan Manufacturing Index
- Tokyo core CPI
- Preliminary gross domestic product (GDP)
- Trade balance
Are You a Safe-Haven Currency?
Yes, the yen is seen as a safe-haven currency. Japan’s government debt is largely owned by domestic investors, making the country less at risk at the capital flight that can occur when economic or political shocks cause confidence to collapse.
How Can I Trade You?
You can trade the Japanese yen using any of the following:
- Spot Forex
- Forex futures
- Exchange-traded funds (ETFs)
- Exchange-traded notes (ETNs)
- Spot Forex options
- Exchange-traded Forex options
