– 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? It is important for Sony to manufacture more products in the United States and Europe as a way to sell more and improve profit margins. The most straightforward way to manage exchange rate fluctuations and minimize the risk from these fluctuations is to shift production to those countries whose exchange rates are less violate and to the United States and Europe.
This will allow Sony to produce under the same currency regime that the company is selling the product in. The downside to this production approach is the higher labor rates in these countries. This is why China is a good option since China’s currency is fixed, minimizing exchange rate fluctuations, and China has a low cost of labor. Sony should buy more from suppliers in other countries in Asia because “the purchasing power of the yen rises as it strengthens compared with other currencies” (Daniels et al. 2011) so everything Sony imports into Japan or outside of Japan for its’ manufacturing is cheaper. Sony must match dollar revenues with dollar expenses through investing more in the U. S. or n other countries in Asia, where components are less expensive but where Sony can invoice in dollars. – What are 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?
Prior to financial crisis in 2008 it appears that the exchange rate between Japanese yen and other for currency, such as the United States dollar was based primarily off of fundamentals within individual countries such as economic growth, unemployment growth, and inflation. The U. S. stock market crashed and the collapse in the housing market caused investors to place funds into safe-haven assets like the yen. After the financial crisis beginning in 2008 (2007 really), the value of the yen was determined, in large part, due to speculation as speculators used the yen as an investment.
Speculators purchased the yen because they thought of it as a safe-haven asset. The yen then increased in value due to this increase in demand, but so did the dollar because the dollar is also seen as the currency of the world. The United States dollar is a major currency in the world because the dollar is seen as a safe asset. Therefore, the yen’s gains against the dollar were not as significant as they might have been but the yen did make sufficient gains against other currencies such as the euro, which simultaneously lost value due to sovereign debt concerns and other downside economic risks.
The greatest impact on the yen was when the crisis hit and money left emerging markets to return to Japan. This practice is called carry trade. It is a result of volatile currency markets and served to strengthen the yen. The future value of the yen is hard to say since there is an uncertain economic outlook across the world, but I would expect the exchange rate to return to be based off of economic fundamentals. What these fundamental will be have yet to be determined by the global recovery.
