Whats going on in Japan

Until the early 2010s, Japan enjoyed a trade surplus and a positive current account balance. However, in 2012, Japan implemented a significant quantitative easing (QE) program through the Bank of Japan (BOJ). This program involved buying Japanese Government Bonds, resulting in a substantial expansion of the BOJ's balance sheet. This move was aimed at weakening the Japanese yen to boost exports and reduce imports, impacting the Nikkei 225 stock index significantly. On the 29th the BOJ annouced to by 300 Billion Yen of 5-10 Year Japanese Goverment Bonds.

To compound Japan's economic challenges, the situation worsened when the Federal Reserve decided to halt its quantitative easing (QE) program in 2014. This decision had a significant consequence: it led to a strengthening of the U.S. dollar.

By 2015, the impact of Japan's intervention became gradually evident as the trade balance began to improve. With imports becoming more expensive and exports becoming more competitive due to the weakening of the yen, Japan saw a positive shift in its trade dynamics.

Since the end of 2021, Japan's trade balance has once again slipped into a substantial deficit, and the value of the Yen has reached historic lows. In response to this situation, the Ministry of Finance intervened by purchasing Yen in October, which temporarily boosted the currency's value but had an adverse effect on the trade balance.

Now, yet again, the Yen finds itself at troubling new lows, prompting many Japanese companies to initiate the relocation of their production overseas. This shift in production is a response to the ongoing challenges posed by the weakened Yen and its impact on Japan's export competitiveness.

A significant intervention is likely to occur when public discontent escalates, and there is mounting pressure on the government. For instance, in October, Japan announced its intention to collaborate closely with the United States to curb the strength of the Yen. This decision was made in response to increasing public dissatisfaction and growing demands for action to address the Yen's value

Signs of intervention are becoming apparent, such as a sudden 300-point shift in the USD within just one hour. This kind of rapid and substantial movement in the currency market raises questions and suggests that unusual measures may be at play.

Now we have to wait an see

Thanks

Finn