Economic developmentDespite the fact that Japan has one of the leading positions by economic development rates, not nearly in all quantitative macroeconomic indicators that constitute the aggregate indicator of the country's economic development, Japan is ahead of the USA, EU or China. Nevertheless, regarding qualitative characteristics, the country is really ahead of the majority of its competitors. In whole, Japan's economy is targeted, firstly, at expansion of domestic demand, and, secondly, at the development of its own scientific and technical potential. In this regard, a part of production has been moved to the countries that have more favorable currency exchange rate for the economy and less expensive labor force. Altogether, Japan's share in the aggregate industrial production makes around 12% of the global value. In general, the following industries that are based on advanced technologies are developed: IT, communications, biotechnologies, production of new materials. More than a half of ships (52%) manufactured globally are produced in Japan. The share of the Japanese automobile building industry embraces almost a quarter (23.9%) of the global volume. Besides, Japan is the producer of agricultural equipment, equipment for metal-working manufacturing industry, steel, and electronics.
Japan imports not only raw materials for its own production but also energy resources (gas, coal, oil, uranium, etc.). Only 20% of those raw materials are purchased at domestic markets, the country buys the rest abroad. Japan's inflation and unemployment levels are all-time low for a country with developed industry. Meanwhile, earnings increase about by 2% annually. The agricultural sector, although its share in GNP is relatively low, plays an important role in the country's economy.
Structure of private enterprisesMedium and small businesses rank as main participants in the Japanese processing industry. Meanwhile, and that is one of the key characteristics of the Japanese economic model - the share of small enterprises does not reduce. The reason for that is so called vertical integration, when companies of various sizes - from large to the smallest - unite into industrial, financial, and more often, into industrial and financial groups - keiretsu. This indicator exceeds 60% of all medium and small enterprises in the area of processing industry. This practice is characterized by the fact that it eliminates the take-over of small businesses by large businesses. This issue is regulated by the country's legislation that limits capital centralization. The market that functions within such a group is more profitable for all its participants than free market since both transaction expenses and risk level in this case are lower. Moreover, companies that are so versatile in size function in the market, which is external for the group as one whole. In the result, both small and medium business obtain competitive advantages that they would not have had they acted outside of a corporation. Financial institutes, in particular- banks, are often the members of corporations.
The system of mutual stock ownership (so called indirect financing system) that exists inside of such groups allows to eliminate purchase of stocks from without practically completely. Besides, this system minimizes the influence of fluctuations at stock markets on the corporation and practically eliminates the need for the use of their own money at the capital market. While direct financing assumes bank's determination to have the maximum level of profitability, the main purpose of indirect financing is an increase, and to be exact, expansion of its share. In case of mutual ownership of stocks and, as a result, in mutual settlements inside a corporation, high dividends simply lose their meaning.
Japanese companies' assets that are represented in the from of stocks are shown according to their book value. In the result, discount rate excess of those stocks' market value leads to the increase of companies' hidden assets allowing them to invest in the framework of their own interests and not in the interests of stock owners. This thing also allows to bypass a number of limitations on the part of regulatory bodies. This way, Japanese entrepreneurs have much more freedom of operation than their colleagues from other countries of the Western world.
Currency system and influence on currency rateThe Ministry of Finance is Japan's main political and monetary institution. That Ministry's officials have a significant effect on the national currency rate - yen, making quite frequent declarations on the condition of the country's economy and planned steps for its regulation. That is so called verbal intervention, and its goal is to support the national currency on the level desired by the country's government. The Bank of Japan is the country's central bank; it completely controls the country's monetary policy. Nevertheless, the policy regarding the currency market is completely in the hands of the Ministry of Finance.
Overnight Call Rate is the key short-term interbank rate. That rate is directly dependent on the actions taken by the Central Bank in the open market. Using it, in particular, the Bank of Japan exercises liquidity control. The change of those rates is a type of a signal that warns of the change of the Central Bank's currency policy. That signal had an immediate effect on the national currency rate at Forex. Making low interest rates and making yen a low-profit currency, the Central Bank, therefore, contributes to investors raising loans in yens with the purpose for its further conversion into a currency with high profitability. Such transactions directly influence yen's rate.
Another Japan's important financial body is the Agency for Economic and Fiscal Policy, which is responsible for coordination both the country's economic policy, in general, and separate economic programs. In particular, those are programs for unemployment level, exports and imports operations, etc. Policy and declarations made by the country's Ministry of Economy, Trade, and Industry have significant influence on yen rate. Since the main goals of that body are protection of Japanese manufacturers' interests in foreign markets, and yen's low rate in regard to other currencies makes Japanese goods more attractive at international markets, this ministry is directly interested in the national currency rate decline.
Important indicators and surveysThe main macroeconomic indicators that have the biggest influence on yen exchange rate are the following:
- International trade condition;
- Unemployment level;
- Volumes of industrial production;
- Volume of outstanding money supply.
Central Bank's report data (Tankan Survey) are of special importance. This survey made and published each quarter characterizes business sentiments and expectations in the country. Its data are generated on the basis of polls made at around 9,000 Japanese enterprises. Based on those polls, quantitative data are obtained and diffusion indexes calculated; those indexes indicate how favorable are country's conditions for business, including those financial, and in particular - credit conditions, demand level for production, size of stocks, employment level, etc. This report characterizes business climate in the country, in general, therefore its data make significant influence on yen exchange rate.
Nikkei-225 is an important index of the Japanese stock market. Since essential decline of yen rate has favorable effect on the growth of stock price of exporting companies, the decline of yen's price leads to the growth of this index. Meanwhile, high level of Nikkei, in itself, serves as the reason for the inflow of investments into the stocks of Japanese companies issued in yens, which, in turn, leads to the growth of yen exchange rate.