The Japanese Yen Continues to Cause Problems for Japan

UPDATE.. Bank of Japan statement… rates hold

Today the Bank of Japan will meet to make its final decision for 2011. Their decision has been complicated by the continued slide of the economy, worries about the EU and their main trading partner China.

The Finance Ministry, released the most recent economic data. Their findings came in below expectations, with a continued decline in export by 4.5%

Japan’s economy went into a recession immediately following the devastating earthquake and tsunami, earlier this year, but the country climbed back out of recessionary territory by late summer. The pent up demand for manufactured goods and parts, helped improve the economic data, but that demand has continued to diminish during the last and the most recent quarters.

Finance Ministry data showed exports came in at 5.2 trillion yen ($66.8bn; £42.6bn) in November, declining for the second straight month.

Imports rose 11.4% to 5.88tn yen, the ministry said. That pushed the economy to an expansion in the trade balance deficit to 684.7bn yen.

Of course global economic markets are weighing heavily on Japan, which prime export are automobiles and automobile parts and consumer electronics, both industries have been contracting worldwide do to a drop in consumer demand.

The continued problems within the EU and the uncertainty of currency, has made exports around the world difficult.

“The adverse effect of the slowdown in Europe through a drop in Europe-bound exports and possible spillover onto demand in Asia has begun to emerge,” said Naoki Iizuka from Mizuho Securities in Tokyo.

There is a two headed snake here, the problems within the EU have investors seeking safe-havens for their money and the yen, is considered a safe investment, so the increased demand for the yen, keeps their currency value inflated, making it harder on importers and exporters and causing inflationary problems for the Japanese economy.

The effect is such a concern that the ministry and central bank have intervened in the forex markets to reduce the impact.

Just a day ago, the central bank stated that they will expand the funds available for more currency interventions in the future. The Bank of Japan faces very difficult economic problems at their meeting tomorrow as they are walking a very thin line.