Thursday, 6 February 2014

An Economic Guide to Japan

Considering that rising Japanese inflation has come to our attention recently, this week the Academy of Financial Trading blog thought we’d bring you a basic guide to the Japanese economy. Why do you need to know about it to succeed in financial trading?

Basically Japan is the third largest economy in the world, behind only the US and China. Considering that the larger the economy, the greater impact it has on global financial affairs, it stands to reason that Japanese economic activity stands only behind American and Chinese in nations that could have an effect on markets that could alter your financial trading strategy.

Now for a little history lesson. The Japanese economy was devastated by its loss in World War Two, however it quickly recovered, and in the three decades following 1960 expanding majorly because it cut defense spending to solely focus on economic growth. However more recently the country has been dealing with a 15 year long deflation problem.

Today Japan is impressive statistically. It is the country with the third largest GDP (Gross Domestic Product, a nation’s market value of all its final goods and services) in the world. It is the third largest car manufacturing country in the world and has a large electronics industry that is valued by many.

Japans key exports (goods and services it sells to other nations) are cars, electronic devices and computers. Its key imports (goods and services it buys from other nations) are raw materials such as oil, foodstuffs and wood. Trade partners include the US, China, Singapore, Hong Kong, Germany etc.

From this it’s easy to see why you have to watch what’s going on in Japan. It trades with many countries heavily; meaning that any economic development in the island nation could have ramifications internationally and its role in a myriad of industries indicates that trading in any of these areas means you’ll have to deal with Japan in one way or another.

Generally Japan is a strong nation that can bear economic storms well, however it has its fair share of issues. One problem we’ve already alluded to is its 15 year battle with deflation. Deflation is a fall in consumer prices throughout the economy, usually coming at a time of high unemployment.

This has proved a key issue in Japan because lower consumer prices mean that companies are less eager to sell in your country. Nobody wants to sell their product at a loss and this has had a shrinking effect on Japanese economic growth. However despite this Japan is still a thriving market.

Japan is an amazingly innovative, diverse economy that has an impact on numerous areas of global trade. This is why you need to know about Japan in financial trade, so you can anticipate how its developments may affect your investments. 

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