The current appreciation of the Yen has slowed Japan’s economic recovery, and has rapidly gained strength against the U.S. dollar.
Possible explanations for the rapid appreciation include both the earthquake and tsunami that hit Japan in March 2011. These natural disasters severely hampered Japan’s ability to produce exports.
This inability to produce exports significantly reduced the supply of Japanese goods available in the world market. However, the demand for the goods remained the same, which caused the price for the Japanese goods to increase.
Since the majority of the contracts for sale are valued in Yen, not dollars, the value of the Yen has increased significantly in relation to the U.S. dollar.
“I can understand why this appreciation is happening,” said junior Lilai Teum. “It sounds like basic economics to me. The value of the Yen should be able to return to normal levels once they are able to increase their exports and supply.”
“It’s definitely something that the people in charge will need to handle and take care of,” said junior Josh Arkin. “I feel that they should make some kind of intervention in order to at the very least slow the appreciation. Any money the government could provide would likely help out.”
On Nov. 21, the Japanese government approved an extra budget that would put 12.1 trillion Yen, or 155 billion U.S. dollars, into the Japanese economy. Some of the budget will be put towards rebuilding after the natural disasters that occurred in March 2011.
9.2 trillion Yen, or 76% of the budget, will be put towards reconstruction projects and companies that find themselves struggling due to the much stronger Yen.
The government hoped that the extra budget would convince Japanese companies most affected by the stronger Yen to not move some of their factories and jobs outside of Japan.
Public debt is currently twice the size of Japan’s $5 trillion economy.
The government plans to spend 19 trillion Yen over the next five years in order to rebuild the areas most devastated by the natural disasters in March and help the current struggling economy.
This was the third extra budget of 2011 for Japan.