Historical Price Movement
The Japanese Yen and the historical price movements
Japan has witnessed a long history of the stable economy which has induced most of its investments both locally and internationally. This remarkable achievement in the economic history of Japan is due to long-term stability in its currency (Japanese Yen). The current economic indexes present the Yen currency as the most traded in the global market after the U.S dollar and Euro. Again the currency is used widely as foreign exchange reserve after U.S dollar, the Euro, and the sterling pound. Until 1882, the Japan government used to run the economy on the silver and gold currency: the Bank of Japan was then instituted and given the mandate of regulating the money supply to date. This paper takes into account the price movements on changes in the value of Yen currency and central banks policies on the exchange rates.
The Japan economy experienced a long deflationary cycle from the early 1990s, making the economy of the country to deteriorate hence weakening the demand of the economy. In the economic sense, the general reduction of the prices of the goods and services lead to the increased level of quantity demand. Contrary, in the long-run the continued deflation resulted into reduction in domestic demand as most business held their products hostage in expectation of higher prices in the future: This behavior of the economic players lead to the general reduction in the prices of goods and services
In 2012, the government of Japan induced several monetary and fiscal policies to increase the inflation rate by 2 percent in the agreed two years. To put this into force, the government of Japan began to buy the government bonds and bills to accelerate the level of demand for the Japanese products. The aim being to create favorable prices for trade: On the fiscal aspect the changes were to institute a corporate tax break through for the industries for them provide favourable wages to their workers: the fiscal policy changes also resulted in increased demand due high disposable income with the workers
In July 2013, Japan inflation rate grew by 0.7 percent which was recorded at the highest level as compared to the past years. Due to this significant change, the enforced policies worked as intended. In early 2015, the economy reached it expected 2 percent rate of inflation. As a result of this significant change, an advanced level of price movement, increased wage rates, and increased level of production was observed which also had a significant indication in the value of Yen.
Brendan (1983) stipulated that fiscal and monetary policies of Japanese government also had an impact on the value of Yen. For example, since 1971 the currency has trended positively against the dollar for a long-term. The Yen maintained a trade surplus for a long term due to the low inflationary rate of the Japan economy over an extended period. As a result, there has been an upward demand for Yen hence creating increased demand for the Japanese exports internationally.
As per the currency indexes presented by the Bank of Japan, the consequence of the general reduction in the prices of the fuel and nonfuel products, a general reduction in prices has been observed. For example in the year 2013, the prices of the goods in the international market reduced by 1.3 percent as shown the table below. This trend also made the Bank of Japan to adjust its currency to interact fully with the international prices.
Figure 1: The historical real effective exchange rate of Yen.
Source: united States Bureau of labor and statistics
In a nutshell, it is important to note that Yen is one of the most valuable currencies in the foreign market after the U.S dollar and the Euro. Therefore, as a result of this fact, it has accelerated the rate of the development of the Japanese economy as compared to other rival nations, i.e., Germany.
References
Hongo, Jun, “Despite mounting debt, yen still a haven”, Japan Times, September 13, 2011, p. 3.
Japan Mint. “75th anniversary of Japan’s shift from gold standard to managed currency system”. Retrieved December 26, 2007
George S.(2009). Standard Catalog of World Coins 1801–1900 (6 ed.). ISBN 978-0-89689-940-7
Bank of Japan, Recent Price Developments in Japan, Special Paper No. 198, March 1989
Bank of Japan, the Process of Decision-Making and Implementation of Monetary Policy in
Japan, Special Paper No. 198, March 1991
Brendan B. (1983), the Flight of International Capital, 1931–86, Routledge, London, 1987
