Saturday, February 25, 2006

Rise of Yen against major currencies: Is Japanese economy heading for a Prosperous time?

This week Japanese Yen became very strong against dollar and it had record gain against dollar for a long time. This rise in Yen came after strong speculation in the media that the Central Bank of Japan is going to change its policy of deflation-fighting from next month (March 2006) which lasted for the last 7 years. According to the media, the price of Yen has risen against 16 currencies including US Dollar and Euro. If Bank of Japan really changes its policy then the price of Yen will increase more against the major currencies. Now the main question to ponder about is that whether this is the sign of the beginning of the recovery of Japanese economy that has suffered recession and slow growth for a long time. In fact, this policy of deflation-fighting has been going on for the last 5 years.
Japan was completely destroyed in Second World War and there was hardly called Japanese economy at the end of the Second World War. However, Japanese companies quickly turned around and from the 1970s thanks to having cheap, highly educated and hardworking workforce Japanese companies started to dominate in the electronics and car industries. This trend continued in 1980s and Japanese economy became the second largest after US economy. It is worth mentioning here that Japan does not have almost any natural energy and minerals like oil, gas, iron etc. A considerable portion of the country is either forest or mountain and earth quakes are frequent in this country. Still, Japan developed so fast mainly because there was a good combination of government efforts and private sector. The government and the private sector both invested heavily in the education sector and especially in industrial research.
In the last 10-12 years Japanese economy struggled after years of growth. After many years Japanese workers started to get worried about job security. The market stopped growing as people started to become conservative in their buying habit for fear of future insecurity. Now it seems that Japanese economy is turning around for the good time. This change of policy is perhaps the first indication of this turn around.