Japan is a pivotal player in the economic health of the global economy. The island country possesses the third largest economy in the world. Japan’s economic solvency like that of the United States is one that could cripple the global markets if isn’t gotten under control. If Japan’s economy were to continue to decline, the economic repercussions for the global economy would be dire. The economy took a huge hit in March 2011 due to the earthquake and tsunami that devastated the island. It has since recovered from the slump. Even though Japan has seen some decline which has caught the eyes of the global market watch dogs, the country isn’t causing too much alarm. The country differs from Italy and Greece in that Japan’s has its own central bank and produces its own currency. During these tumultuous economic times, the Yen has weakened. Investors and economists are expecting Japan to reform some of its economic policies in order to waylay concern and stop their interest rate from rising and the yen from declining in value.
The new minister of Japan is calling for tax reform through tax increases. As of now, Japan’s sales tax is amongst the lowest in developed countries at 5%. Some speculate that if tax reforms aren’t brought about soon, the country could suffer from a recession like that felt in the United States. Global concerns and the rise of inflation in Japan haven’t made the yen unattractive to investors. Instead, the economic situations in the U.K. and the decreasing growth in China make investing in Japan more favorable. Investors believe that the risk experienced in Japan is minimal in comparison to other countries. The Bank of Japan has intervened as well and advises against pressing the market to soon and stretching it too thin. Even though a downgrade is imminent, traders are still investing in Japanese bonds with the hope that the yen will bounce back stronger than ever.
