The Japanese Prime
Minister Shinzo Abe’s had a solid win at the polls. He won 312 out of 465 seats
in the election. He plans on having a continuation of fiscal and hyper-easy
monetary policies. Investors are happy with these developments and exporters
will gain on the softer Japanese currency. This means that the Japanese prices
are lower, making buying Japanese production more attractive for foreign trade.
The dollar spiked fetched as high as 114.09 yen, it is the highest exchange
rate in more than three months. The result from Abe’s victory made the Japanese
market see overall trading gains compared to other Asian countries market
trading. Korean markets had mixed
results. There was gains in blue chip tech stocks but losses in manufacturing
trades. Hong Kong had a decline in gaming and oil stocks and China had a slight
increase from their flat line trading in the past months. New Zealand’s trading
was slightly up from last week’s fall due to the announcement that the Labor
Party coalition would be forming. The
euro has been struggling due to a crisis in Spain. In the United States stocks
closed higher on Friday after the US senate passed a budget measure. This
allowed republicans to pass a tax bill.
The
dollar rose in value because the real exchange rates are higher resulting in a
depreciation of the yen and appreciation of the dollar. The real exchange rate
is related to net exports.This means that the dollar can get more goods and
services in the Japanese market because the value of the Japanese yen is lower
and the prices of products are lower. When the exchange rate is high the
domestic goods are expensive and foreign goods are less expensive. So, this
will increase the imports and decrease exports for the foreign countries such
as the US. This will ultimately lead to decrease in net exports. Also, because
a trade balance must equal the net capital outflow, saving and investments
aren’t affected by the exchange rates. The increase in investment is slowly due
to the change in the world interest rate. Because of the appreciation of the
dollar it will cause the interest rates to be low which will increase
investment demanded.
It will be interesting to see how over the long run the Dollar Yen exchange rate as population demographics continue to shift between the U.S. and Japan. In the medium term various other elections could be of quite concern, as elections in Hungary, Italy and Russia continue to shift the fragile balance in Europe. Pakistan's elections could mean a major change in how governments deal with, and subsequently how they spend money on, terrorism. And finally the U.S. midterm elections and as such may give the ruling Republicans even larger majorities to pass bills in Congress or could hand over one if not both chambers to the Democrats which could grind much of President Trump's agenda to a halt, meaning the continuance of Obamacare, no wall being built and the tax code being left as it is.
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