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Reason for the higher Yen(1) Exports

The Yen appreciation arises from increase of Japanese exports, like auto and electric products.

Assuming the simple model to explain the process of Yen appreciation, the Japanese exporters manufactures various products for exports in Japan and they need to pay for the materials and wages in Japanese Yen despite the sales overseas could be received in forex currencies. Then, the Japanese exporters need to sell much forex currencies to get the relevant Japanese Yen to fill the payments. They would exchange the forex currencies using some banks.

These banks hold the long position of forex currencies and eventually they need to cover it in the forex market. These actions for covering position urges Yen appreciation.

Reason for the higher Yen(2) Foreign investors

The overseas investment to the Japanese asset markets, like stocks, bonds and real estates, prompts Yen appreciation as well. The foreign investors need to sell the forex currencies to purchase the Japanese assets, and then, It should be more attractive when the Yen is weaker than the forex currencies. It is needless to say that it would be charming when the prices of stocks and others are cheaper. The Ministry of Finance in Japan takes action to guide the forex market toward weaker Yen in case of depression, because the authority have an idea that foreign investors take it into account the forex rate should be under weaker Yen.


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