Evidently, Japanese Yen is one of the strongest currencies that play a critical role in determining the direction that the international markets will take (Toma, 2015) . In this way, the fluctuation of the Yen has both positive and negative effects on different stakeholders and countries. It is important to note that the U.S Dollar is one of the world’s strongest currency and its fluctuation affects not only the American economy but almost all the countries in the world. In this preview, it is clear that the exchange rate between the Japanese Yen and the US Dollar is of utmost importance to many players especially those involved in the exportation and importation of products and services between America and Japan. Briefly, the exchange rate refers to the rate at which one currency is trading with another currency. In other words, the exchange rate informs the value of one currency in comparison to another country’s currency. Therefore, the weakening or strengthening of a currency against another one affects the monetary value of the imports as well as the exports of countries involved in the exchange.
Based on the above analysis, it is worth noting that the Japanese Yen has for the last one and a half years risen to its highest value in relation to the US Dollar (Tucker, 2016) . The yen has thus increased in its value compared to the other currencies in the foreign exchange markets. Recently, the Japanese yen has been trading at around 111 yen to the U.S. dollar. According to the Bloomberg, the finance officials have been supporting policies that would help in limiting the Yen’s rise, which is informed by the impacts of the strong Yen on different economic aspects.
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As noted above, the value of selling goods or services is affected when there is any fluctuation of currency. In relation to the United States and Japan, the monetary value of exports from Japan is reduced when the Japanese yen’s value depreciates, but the value of the exported products and services increases when the yen appreciates (Toma, 2015) . However, it is critical to note that other different factors may affect the price of the exported products such as taxes imposed by the importing and exporting country.
In the first place, the profitability of an exporting company such as Toyota would either decrease or increase based on the direction taken by the yen’s fluctuation (Twomey, 2012). For example, if in one week there is a precipitous drop in the value of the Yen as compared to the United States dollar, the prices of imports from Japan would be affected. In this case, the Japanese products would become cheaper in America. Assuming that the cost of production for a Toyota car is US$5000 and the projected buying price is US$10000, a buyer of the car in the USA may have to buy at a lower price if the Japanese yen drops in value in a week compared to the previous rate. In this way, the profit made will be reduced thus affecting the business performance.
Notably, from a management perspective, one of the risks related to changes in the exchange rate includes the increase in the production costs. For example, if the value of a currency drops, the raw materials from the same country would increase thus affecting the profitability of a company. Further, a company may as well be unable to sustain its employees due to effects of currency fluctuations. In order to attract as many clients as possible, companies may adopt unique ways of production and service delivery thus increasing competition. Therefore, managers need to develop effective strategies such as diversification to minimize the risks involved and increase profitability.
References
Toma, M. (2012). The risk of trading: Mastering the most important element in financial speculation . Hoboken, New Jersey: John Wiley & Sons, Inc.
Tucker, I. B. (2017). Economics for today . Australia: Cengage Learning.
Twomey, B. (2012). Inside the currency market: Mechanics, valuation, and strategies . Hoboken, N.J: Bloomberg Press.
