lowing economic bubble burst in the early 1990. The government responded by stringent tariffs and policies to encourage the population to save. As a result, short term interest rate targets and low level of government bond yield were used as tools to boost domestic demand and GDP. However, it has clearly become evident that the use of monetary and fiscal policies has had no bearing on reviving the Japanese economy while the debt continues to grow.

The value of the Japanese Yen (JPY) continues to fluctuate as trade war between China and the USA continues to escalate and trade disputes with South Korea adding additional pressure on the currency. On the other hand, the JPY remains the third most traded currency and its ability to operate a current account surplus continues as 1.21 trillion JPY was recorded in June 2019, ensuring Japan’s ability to act as a net lender. Given that, China and the USA are major exports of japan (Reference), conflict in tariffs will ensure consumers seeking alternative markets with comparative advantage to import goods and services from. Which is clearly evident as the JPY has appreciated against the USD and will continue to appreciate in the short run due to consumers seeking cheaper alternatives. However, the value of the JPY is predicted to fall in the long run as the trade war tensions should conclude.

The current account surplus has allowed japan to accumulate foreign assets, job creation in exports sector and high share of output is exported than consumed. Furthermore, weak domestic demand which rose my mere 0.2% in February 2019, reluctance to buy imports and greater competitiveness due to undervalued Japanese Yen continues to produce a current account surplus where the exports exceeds imports. Based on PPP, the Japanese Yen is under valued at $-2.52 against the Australian dollar (reference) allowing the exporters to access goods and services at lower prices due to higher purchasing power.

On the other hand, the current account surplus increases the supply of foreign currencies in the market driving the exchange rate down in the long run, but the low interest rates are driving the demand for the JPY up and therefore for the value is appreciating in the short run.