Japan recently posted a trade deficit for the year 2011. This is the first deficit that Japan has reported in 31 years, making it very newsworthy. The deficit stood at 2.49 trillion yen, or about $32 billion in U.S. funds. Caused by the earthquake and the tsunami that followed it, Japan’s economy struggled in 2011. And in the face of a strong yen, outside investments in Japan’s businesses and internal economy faltered. For the month of December, 2011, the exports out of Japan dropped 8 percent from where they were a year ago at that time. Imports, in turn, rose 8.1 percent.
The yen dropped sharply in price in relation to the dollar after the deficit was announced. Before the news, the yen stood at just under 77.00 yen per dollar. The yen then weakened up to almost 77.80 yen per dollar. This drop in price was the largest drop in the yen’s price (about 0.52 percent) that the yen had seen since October of last year. This occurrence indicates that the Japanese economy might be in worse shape than what first appeared. With a falling yen, there will be more traders buying up the yen, and fewer dollars being pumped into Japanese businesses.
How far the yen will fall remains to be seen. After the tsunami hit Japan in March 2011, the yen spiked up above 85 yen per dollar before rising in value back to where it was before the tsunami. Then in July, the yen began to gain strength as it went from 81 yen per dollar down to 77. The yen has been trading within a tight range up until Tuesday the 24th’s announcement. It is unlikely that 85 will be reached again in the near future, but that doesn’t mean that the yen will not struggle.
Experts had placed the yen within a range of 77.60 to 76.50. The movement on Tuesday went up above 77.80, indicating that this range is about to be eliminated. The yen might be poised for another drop in price as the Japanese stock market begins to attract more investors. This is a good thing for the Japanese economy, and a bad thing for Forex investors looking to make quick money off the yen. This action was met by the Nikkei with positivity. The Japanese stock market advanced by rising 0.8 percent in the wake of this news.