FOREX Focus: Boom and Bust in Japan
The second largest economy in the world, Japan boasts of a highly industrial and advanced economy. However, this does not preclude the fact that Japan's economy has also experienced busts and recession, and in the last ten years, its financial system has earned the moniker of a "bubble economy". This is important to foreign exchange traders especially to those that trade Asian currencies, and in addition US dollar and the Euro.
From the late 1800s to the early 1900s, Japan developed largely and was known militarily in East Asia. Trade with China and Korean peninsula developed with the Japanese economy. Shipping and exportation of mineral goods were the primary reasons for Japan's rise to power.
However, after the Second World War and Allied Occupation in 1952, Japan was a less-developed country. But, in a span of two decades after that, Japan steadily increased its growth rate by eight percent, and it became the fastest country to rise to a developed country. The factors included high savings, private sector investments, and an educated labor force with high work ethic. In a fast and steady boom, Japan became the world's second top economy in 1968, and it has held this position ever since.
The highly competitive industrial sector became the driving force of Japan's economy. Ship-building, automotive, computer and electronics became this country's top exports and soon, people became accustomed to have Japanese names dominating their daily lives. The heavy industry of Japan became the highest competition of the United States.
In 1985, Japan had the Plaza Accord which highly appreciated the Yen's value. It reached 120 yen per US dollar in 1988 - that's three times its original value in 1971. Because of the sharp appreciation of their currency, their export goods' prices also increased - lowering its competitiveness in international market. Nevertheless, domestic demand sustained the growth.
In 1989, speculation in the Nikkei stock market and wrong financial policies of the government sent stock prices to go rapidly down. Land, used as collateral by corporations, lost its value. The economy went to recession in 1990, and the proverbial economic bubble "burst".
The economy partly recovered in the succeeding years. However, almost the same event happened in the late 1990s aggravated by bad national debts. We now call this event as the Asian Financial Crisis. With the collapse of Japanese economy, Asian economies almost followed the same route altogether.
With these experiences of boom and bust, forex traders are given the foresight of the prospects of Japanese economy and currency trends. Again, this is not meant to caution you, but to provide proper advice in your trade decisions.
