Japan is known for being one of the most technologically advanced countries in the world, from being an advanced and a global leader in the robotics, natural sciences, aerospace exploration, and biomedical research areas to providing us with most of our favorite cartoons, such as Doraemon and Shinchan. Seriously, imagine our childhood without Doraemon and Shinchan! Although this country seems so advanced in terms of technology and research, it severely lacks in how much its currency is valued. However, since last year, the country has been rewriting this narrative. Though it is still early to tell if strong momentum will result in a long-term regime change, the future of Japan seems brighter than it has in the past, especially for active investors who are well-positioned to spot market inefficiencies.
The dollar has always been extremely powerful, holding the most value and crushing all the Asian currencies. Now, the tables have turned. Asian currencies are, if anything, too strong. It's the dollar that's under pressure - and the world is on the brink of another crisis. Since the holders of other major currencies, particularly the yen, are running significant current surpluses in comparison to the United States, which is experiencing sizeable current account deficits, it is believed that the dollar is overpriced. These days, any movement of money from a country with excessive savings (Japan) to one with high investment returns (the U.S.) must include current account imbalances. However, significant current account imbalances indicate that the surplus countries are retaining a rising portion of their wealth in the deficit countries. The global surplus and the U.S. deficit must eventually be drastically reduced, if not reversed. While there are other possible ways to make this adjustment, it is most likely that a significant portion of it will come from a drop in the value of the dollar relative to other currencies, such as the yen, the euro, and so on.
In demand-constrained economies like Japan, dramatic monetary expansion will be effective since the country is still stuck. However, keep in mind that monetization will boost domestic demand in addition to preventing the dollar from declining further. Under normal conditions, interest rate reductions in the countries that are appreciating would have exactly these impacts.
The last time the dollar was significantly overpriced didn't do much damage, mainly because the countries that experienced the appreciation could quickly increase domestic demand. The reason the current state of affairs appears more concerning is that non-dollar countries are unable to boost demand using traditional means and are reluctant to consider adopting unorthodox ones. The root of the issue is the unwillingness to evolve using unorthodox means rather than the dollar in and of itself.
Investor interest has been heightened by Japan's economic recovery and its strong emphasis on raising governance standards, which might be a significant boost to company profits in the years to come. Earnings should continue to be good in the near future due to a declining value of the currency, an increase in incoming tourism, robust corporate capital expenditures, and other beneficial long-term structural improvements that are taking place. A change in consumer and corporate behavior would probably have a long-term positive impact on growth, investment, and company. Long-term investment success in Japan might necessitate a proactive approach to investing in both public and private sectors. There seems to be a new dawn approaching Japan. P.C - https://corporatefinanceinstitute.com/resources/foreign-exchange/japanese-yen-jpy/
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