Europe Contagion Hits Japan

chart of Japan trade balance with EU

Europe hit Japan right where it hurts – in the wallet – for the first time in 38 years. We all know that Europe is hell bent on carrying out austerity-driven policies. That drop in exports above is vicious. The following recovery has been tepid at best. It looks like the recession that has gripped Europe since 2009 is spreading beyond its borders.

As its second largest trading partner, Japan needs European business to help inflate its economy. Decreasing trade, however, leads to decreasing price hikes which leads to more deflation which equals a strong yen. Currencies from low-inflation countries are always in favor with investors. With $USDJPY around 80.00 and the $EURJPY having traded to record lows, the BoJ has quite a fight on their hands as Europe only gets worse still.

But who cares? Interesting chart, nonetheless.

Source: Reuters

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