Asia In The World Economy - Research Paper Example

During the late 2008, Yen began to appreciate sharply against dollar and was valued at 86.15 yen in 2009. At the end of 2010, the yen was rated at 88.66 yen. (Source: World Data Bank) The real effective exchange rate as seen from the graph has remained volatile between 1980s and 1990s. During the era of 2000 and forward, the value of yen has declined. It has been going down from the price of 120 dropping to 80. After the financial crisis of 2007-2008, the yen is seen to gain value and is rising till date.

Japan’s real exchange rate has appreciated over the years due to the rapid increase in the high-productive manufacturing sector. Trends in Japanese Exports – in terms of value and composition (Source: World Data Bank) The exports in terms of value are an important element in the present Japanese economic adjustment. The structure of exports as well as imports has changed considerably over the years. The above graph shows the trends in exports value since 1980 till date. There has been a constant growth in exports since 1980s till 2000 with minor fluctuations in between.

These exports can be attributed to the increase in IT-related goods, consumer goods and US been the largest trading partner. (Source: Statistical Handbook of Japan, 2010) According to the composition of exports, the leading export commodity was transport equipment which is 22% of the total exported value. It is followed by electrical machinery constituting 20% and general machinery 17.8% of total value exported. Another interesting characteristic of Japanese export is the increased proportion of high-value added products such as integrated circuits and steel which are increasing in total Japanese exports.

Relationship between exchange rate (nominal and real) and exports The changes in trade surplus, given by the difference in value of exports and imports, are influenced by price changes. Appreciating yen will lower the price of imports relative to exports causing the trade balance to be higher. Given this condition, during 1990s the yen appreciated 20% causing more imports and fewer exports. This affected the competitive price position of Japanese exports in foreign markets. The Japanese trade and exchange rate are very closely related.

The real exchange rate of yen is highly positively correlated to Japanese trade and specifically exports price relative to import prices. For instance, between 1990 and 1995, the yen appreciated by 40% against dollars. If the prices of yen and dollar would have remained the same, Japanese products would have been 40% more expensive in comparison to US goods. The government intervention to cut down yen export prices and shifting to manufacturing high-value goods helped the growth of Japanese exports during the 1990s.

The export volume grew annually at a rate of 5% through 1990 and 1995. The Japanese exports took a downfall in late 1990s owing to the drop in sales in the European market which is large enough to drop the Japanese exports by 10%. In 2003, when the nominal yen/dollar exchange rate was at 120, the exports rose rapidly which again declined in 2007-2008 because of the financial crisis which cause the appreciation of yen below 90 to dollar. This caused the Japanese exports to fall drastically. Impact of the Plaza Accord In 1985, the G-5 nations including Japan forced United States to devalue dollar because of the current account deficit.

The G-5 nations were