Japanese Yen

1
Japanese Yen

• Major factors influencing Yen/Dollar exchange
  rate
• Trade imbalance
• Political instability in Japan (1989 not 1994)
• Political instability in China (1989)
• Interest rate differential in favor of US assets
• Japanese government campaign to take the
  inflationary speculatory bubble out of the stock
  and real estate markets in Japan

2

• US economy began to weaken in 1990 and the US
  government lowered interest rate to stimulate
  economic growth
• Persian gulf war causes people to invest in
  dollars as a safe-haven currency
• 1993, G-7 countries met to discuss yen/dollar
  exchange rate, nothing was decided
• Weak European economy and strong Japanese
  investors
• Lobbying by US exporters and competitors of
  Japanese exports to the US

3
Major Options Available to Nissan

• Raise prices in US to compensate for strong yen
• Could lead to fall in demand
• Keep US dollar prices the same but absorb the
  difference in lower profit margins to parent
  company or US subsidiary
• How realistic is this?
• Manufacture more autos in third world countries
• Issues?
• Manufacture more cars in the US and develop
  US sources of supplies for the products
• Issues?