The value of foreign deals struck by Japanese buyers in 2010 has nearly doubled to $21.77 billion....

Question

The value of foreign deals struck by Japanese buyers in 2010 has nearly doubled to $21.77 billion. This has been induced by a strengthening yen. The yen has strengthened even though the Japanese economy remains lackluster. The strong yen is good for Japanese companies looking to acquire foreign companies but bad for companies trying to export to other nations. With the higher yen, Japanese companies flush with cash can acquire local foreign businesses fuel growth more quickly than building their own businesses abroad. Acquisitions of companies with strong domestic demand, such as retail and food sectors, have been particularly attractive. Nippon Telegraph & Telephone Corp. reached a deal to buy Dimension Data Holdings PLC of South Africa for $3.1 billion, making it Japan’s biggest deal yet in Africa. Kirin Holdings Co. in July agreed to acquire a stake in Singaporean brewer Fraser & Neave Ltd. For nearly $1 billion, and JFE Holdings Inc. agreed to acquire a minority stake in India’s JSW Steel Ltd. For more than $1 billion. In March, Japan’s Astellas Pharma Inc. purchased OSI Pharmaceuticals Inc. of Melville, New York for about $4 billion in the biggest deal of the year to date.

A strong yen makes Japan’s exports-a cornerstone of the domestic economy-less competitive overseas. That puts pressure on policymakers to take immediate and extensive action to rein in the yen’s strength. But the ability of Japanese’s companies to acquire foreign companies puts pressure on policymakers not to take action. In addition, the same factors pushing the yen up, also are pushing Japanese interest rates down, reducing the government’s borrowing costs at a time when its massive public debt is under scrutiny.

Exercise Questions:

What does a strong yen mean?

What could cause the yen to strengthen?

Why might Japan not want a strong yen?

With the various sectors fighting each other in order to influence Japanese policy-makers, what is likely to happen to the yen?

Why was the yen strengthened even though the Japanese economy has been in a very sluggish growth p

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Robert · Accepted Answer

1.) What does a strong yen mean? 
A strong yen means the Japanese yen has increased in value in foreign 
currency market compared to other currencies. When a currency becomes 
strong that currency can now buys more of the other currency than it did 
before. For example, the exchange rate between the U.S dollar and Japanese 
yen has hovered between 70 JPY/USD and 120 JPY/USD, if the present rate 
is at 80 JPY/USD, the Japanese yen would be considered strong and the U.S 
dollar weak. 
2) What could cause the yen to strengthen? 
Yen is the currency with a net inflow and this is the main cause for it to 
becoming strong. This occurs when demand for yen in foreign currency 
market exceeds its supply. There are various factors which lead to the 
appreciation of Japanese yen. The main reason for it is the trade surplus 
itself. Other factors include the uncertainty surrounded the Euro Zone public 
debt crisis. Falling U.S yield on bonds put downward pressure on the dollar,

The value of foreign deals struck by Japanese buyers in 2010 has nearly doubled to $21.77 billion. This has been induced by a strengthening yen. The yen has strengthened even though the Japanese...

Answer To: The value of foreign deals struck by Japanese buyers in 2010 has nearly doubled to $21.77 billion....

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