Endaka

Graph of yen versus us dollar over time

Yen real effective exchange rate, troughs are endaka

Japanese official foreign currency holdings (1952-2007)

Japanese official foreign currency holdings (1996-2007)

Endaka (Japanese: 円高, lit. yen expensive) or Endaka Fukyo (Japanese: 円高不況, lit. yen expensive recession) is a state in which the value of the Japanese yen is high compared to other currencies. Since the Economy of Japan is highly dependent on exports, this can cause Japan to fall into an economic recession.

The opposite of endaka is en'yasu (Japanese: 円安, lit. yen inexpensive), where the yen is low relative to other currencies.

History

The origins of endaka began in 1971 with the Smithsonian Agreement. The term was coined with the first usage in 1985 during the Plaza Accord, in which the yen was revalued sharply overnight. However, its use in the context of recession was first used in 1992, when Japan's economy slowed down, and again in 1995, when the yen hit its then an all time peak of 79 to the dollar.

Japan has struggled to keep its yen low to aid exporters, resulting in a huge rise in foreign exchange reserves. China, Singapore and Hong Kong typically have a target exchange rate, and they buy foreign currencies to maintain that target rate. Since 2004, Japan has fostered the massive carry trade (via yen-denominated bank loans to overseas investors) to weaken its currency over state intervention.

Endaka occurred in 2008. The yen moved from the floating near 120 to floating near 90. This is thought to be the first time endaka contributed to a worldwide recession, instead of just a Japanese recession. While the proximate cause of the recession is widely thought to be an increase in credit defaults (largely outside Japan) causing a loss in confidence in the credit markets (a credit crisis), the yen was funding these investments through the carry trade over a period of years, where loans were made at low interest rates in yen to finance the purchase of non-yen debts which had higher interest rates. As the value of the yen increased, the trillions of dollars worth of carry trade buildup over years swiftly reversed in a matter of days, and there was pressure to sell these assets to cover the more expensive yen loans, thus decreasing the available credit and accelerating the crisis. By 2010, the yen had touched 81.1129 per USD.

Japan saw renewed endaka after the massive 2011 Tohoku earthquake and tsunami, briefly hitting 76 to the dollar. Again, after the 2011 U.S. debt ceiling crisis of 2011, the yen slowly but surely climbed its way back to after tsunami highs.

Timeline

• 1971: Smithsonian Agreement, yen revalued from 360 to 308 per dollar.
• 1973–1: energy crisis, yen weakened.
• 1978: yen strengthened to 180 per dollar, first endaka.
• 1979–1984: yen remained between 200–250 per dollar.
• 1985: Plaza Accord, revalued yen from 250 to 160 per dollar.
• 1986–1988: yen further strengthened to 120 per dollar, second endaka.
• 1989–1995: yen fluctuated between 100 to 160 per dollar.
• 1995: yen surged to all time peak of 79 per dollar, endaka fukyo.
• 1997: Asian Financial Crisis, yen fell to 147 per dollar.
• 1997–2004: Bank of Japan (BOJ) fights yen appreciation, surging foreign exchange reserves, ballooning national debt, endaka fukyo.
• 2004: (BOJ) abandons active intervention, promotes yen carry trades.
• August 2008: Yen strengthens on oil collapse. This sets off a carry trade reversal which cut $5.9 trillion of yen carry and $1.2 trillion of yen loans (7.1 trillion USD), adding to a severe international credit crunch which set off a global financial crisis.
• 2010: 2010 European sovereign debt crisis causes the yen to rise to a nine-year high against the euro, rising up to 107 per euro.

See also

• Carry (investment)