Japan World’s Second Largest Economy

Japan has the world’s second largest economy and the Japanese Yen has long been considered a safe haven currency by forex traders and investors.That sentiment is changing as data reveals en economy and political system in real trouble. Forex traders noted that according to figures Japan’s GDP shrank by 12.7% in he last quarter of 2008.

Political Instability

The perception of political instability had many FX traders and investors concerned. The resignation of Finance Minister Shoichi Nakagawa for being drunk at a G 7 press conference reflected badly on Prime Minister Taro Aso’s already tenuous political position. In the past the performance of the Yen was closely linked to the performance of stock markets but many Forex traders now have doubts about this relationship.

45.7% Drop in Exports

Because of these economic and political problems forex traders are reexamining the Yen’s safe haven status. The worldwide recession has hurt Japan’s export based economy. The Ministry of Finance reported a 45.7% drop in exports between January 2008 and 2009. In 2008 household spending fell by 5.9%, the largest drop since 1977. Forex traders took note of a statement by Bank of Japan board member Tadao Noda who stated, “Domestic demand will probably weaken further and exports will continue to decline as overseas economies slow.”

Japan Hard Hit

Japan’s economy has been one of the hardest hit and many Forex traders now doubt the Yen’s future safe haven status. A large number of investors have based their financial future on the Yen and a freefall of the Yen would be catastrophic for them.

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