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Currency Markets: Sony, Japanese Yen, Financial Crisis

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1. Given instability in the currency markets, why do you think it is important for Sony to manufacture more products in the United States and Europe and to also buy more from suppliers in other countries in Asia? .

2. Identify the major forces that affected the Japanese yen prior to the global financial crisis in the fourth quarter of 2008? In your opinion, what has had the greatest impact on the yen since then, and where do you forecast the future value of the yen?

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Solution Summary

This solution discusses if it is important for Sony to manufacture more products in the United States and Europe and also buy more from suppliers in other countries in Asia given the instability in the currency markets. Also, it identifies the major forces that impact the Japanese yen prior to the global financial crisis in the fourth quarter of 2008. It discusses what had the greatest impact on the yen since then and forecasts the future value of the yen. Includes APA formatted reference.

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In the early 2000s foreign investors took out low loans in order to take advantage of Japan's low interest rates. These foreign investors used yen to invest in other currencies or stocks, thus allowing profits with little costs. This drove down the value of the yen. The Bank of Japan continued to keep interests rates low, despite other banks raising rates, in a practice called "yen carry trade." This created "an incentive to borrow money in Japan and invest it in other countries where returns were higher" (Hays, 2012). It also encouraged speculators and created uncertainty. This practice became less appealing when value of yen increased against the dollar and "worries began over the fallout of the subprime mortgage crisis" (Hays, 2012).

Traditionally, when the value of currency ...

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Sally Baldwin, Ed.D
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  • MSS, United States Sports Academy
  • Ed.D, Boise State University
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