Japan is the third largest economy in the world after the United States and China. It has a population of almost 130 million people and a GDP of more than $4.8 trillion. The country is famed for its industrial base and its large companies that dominate the world. These include Nissan, Toyota, and Mitsubishi. Japan is also known for the work ethic of its people, who are known to be very hard working. These people work for more than 80 hours every week. The country is also known for its aging population and its declining population.
This year, the Japanese yen has been losing ground against the USD. The reason for this is that investors have almost given up on the Bank of Japan’s ability to hike interest rates because of the slowing inflation rate. Today, the numbers showed that CPI in December rose by 0.7%, which was lower than the expected 0.8%. This is much below the 2% target the Bank of Japan has put.
The low inflation rate has defied the economic principle of the Philips Curve. This principle states that a country’s inflation rate tends to rise as the employment numbers become better. This is because the purchasing power of the people improves when they are employed. In Japan, while the economy is doing well and the unemployment is low, inflation has not been stirred.
There are a few reasons for this. First, Japanese are not known for their extravagance. Instead, they are known to be excellent savers. Second, with most Japanese citizens working so hard, they have no time to shop. For this reason, the government has introduced more holidays to help spur consumer spending. Finally, most Japanese are known to remain at an employer for years. Therefore, tightening labor market does not always lead to better pay.
As shown below, the USD/JPY pair has been rising this year, gaining by more than 1%. The pair has reached a YTD high of 109.4. With weaker data from Japan, there is a likelihood that the pair may continue moving higher.