Japans Economic Globalization and Currency Dynamics: A Comprehensive Analysis

Abstract

Japan Economy and Currency Analysis Part 1: Economic Overview and Globalization, Currency Regime Japan makes significant contributions to the global economy through its businesses based in different sectors, particularly in manufacturing. As the second largest automobile manufacturer, the country has expanded its businesses and is seeking to align to global standards to promote overall growth. Additionally, Japan is one of the most developed country globally and could benefit from the expansion of various sectors to match international business standards. The country’s business environment is yet to reach the standards of major European economies particularly in terms of openness and labor utilization. The GDP of the Asian country is currently dependent on its global expansion and competitiveness in key markets. For instance, the car manufacturers in Japan face competition from their rivals in Europe and the United States even in local and regional markets. The globalization initiatives adopted by Japanese companies need to be aligned to the interests of the global markets rather than the needs of the local consumers. Japan is a highly developed country and one of the global leaders in innovation and technology. In particular, the country’s growth has resulted from its globalization as the second largest automobile manufacturer. Its rich history and culture demonstrate successful trade and interaction with European powers since the 17th century. The modern globalization measures have been focused on increasing the value of the country’s manufacturing sectors and its role in the global economy. The top ten exports from Japan are shown in figure 1 below. Figure 1: Japanese Exports Source: World Bank Japan imports the following products from the global market; Mineral fuels Electrical machinery Machinery including computers Ores and ash Pharmaceuticals As shown by the World Bank Data, the Japanese Yen has been a floating currency since 1973. Prior to this, the country had followed the pegged currency regime that had followed the dollar since 1949. Having a floating currency implies that the value of the Japanese Yen to the US Dollar is indicated by the competitiveness of the country’s businesses in the global economy. Additionally, the movement of the Japanese Yen to the Dollar as a floating currency indicates high rates of fluctuations as a result of changes in the global market. In a floating currency regime, the exchange rate is defined by the fluctuation in the value of imports and exports in a country. This causes changes in the supply and demand of the currency in the forex market and affects the price changes. Contrary to fixed currencies where the government sets the exchange rates, floating currencies are predicted by the changes in the forex rates. As a floating currency, the Yen’s rates are a key indicator of the economic growth in Japan and its influence in the global trade. Part 2: Balance of Payment Current account Table of balance of payment in 2021 in billion US $ The table for balance of payment in 2021 shows that there was a deficit of US $ 22.51 for Japan’s total goods and services during the year. While the balance was positive for exports, the people and businesses in the country imported more services than they exported based on the value. The balance of payments for the past 10 years is indicated in the figure below; The line graph shows that while Japan has a trade deficit, it has a surplus of US $ 149.49 billion. The trend from the graph shows that over the last ten years, Japan has had a large current account surplus even when the trade deficit...