05: Japanese Stock Market

Question 1

Talk about history of Japanese market

Answer 1

• highly developed country & global leader in technology, automotive, and electronics industries

1. government
   - intervenes its markets to stabilize or stimulate growth
2. Nikkei 225 index
   - one of the largest & most influence stock market index
3. challenges
   - gaining population poses economic challenge
   –> declining workforce and greater investment in healthcare

Question 2

What happened to Japanese Yun in Auguest

Answer 2

• Yen carry trade was no longer effective
• investors started to sell of securities
  –> globally decreased the value of yen

Question 3

Implications in Japan

Answer 3

• major industries (automotive and elctronics) saw reduced demand
• risk of recession in with economic growth slowing and consumer spending declining

Question 4

Implications for Japanese Banks

Answer 4

• raised concern on how banks can protect capital
• Japanese isurers relied heavily on equity investments and as a result experienced losses
• banks became more cautious with lending

Question 5

Impact on Canada and USA

Answer 5

• Canadian and U.S investors with exposure in Japan’s market saw losses in portfolios
• major North American indices fell as export companies tied to Japanese market suferred

Question 6

What is the Yen Carry trade

Answer 6

• an investment strategy
• bubble economy popped & lost decade

Monetary policy where they decreased interest
- foreign investors borrowing Japanese currency
- invest in securities & stocks (convert currency)
- they got the returns from the high yield investments and interests from borrowing the money (paid back the interest rates from loans)

Recently
- increased interest rates b/c they wanted to strengthen the Yen
- the investors borrowed quickly sold their stocks and pay back the interests
–> affected the foreign stock markets

How it Affected Nikei
- it fell by two percent
- increases the money in japan
- Bank of Japan
- lose confidence in economy

Question 7

Tell me about the Asset Bubble (the bubble economy)

Answer 7

• around the 1980s
• interest rates were low
• -> helped people want to borrow and invest money (real estate & stocks)

Real Estate & Stocks
- believed they would keep going up
- increased prices a lot
- government and bank of japan (central bank) thought it was ok because increases economic activity

Selling
- real estate is not worth much
–> in the future happened and realized it wasn’t worth that much
- stated selling their real estate
–> bank of japan decreased interest rates
–> led the lost decade (what happened after the bubble pop - high unemployment)

Question 8

How did foreign investors selling their stocks and stop borrowing money from japan impact the japanese stock market

Answer 8

1. currency fluctuations
   - depreciation in Japanese yen
   - can’t keep up with the prices
   - cause imports to become more expensive
2. reliance on trade
   - USA for imports (agriculture)

• no one wants to invest in Japanese stock market

Question 9

How to appreciate currency

Answer 9

1. higher interest rates
   - to make more people invest in foreign

• lagging in innovation
  –> lack funding in research and development, manufacturing