Endaka (, lit. ''yen expensive'') or ''Endaka Fukyo'' (, lit. ''yen expensive recession'') is a state in which the value of the

Japanese yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar and the euro. It is also widely used as a third reserve currency after the US dollar and the euro. Th ...

is high compared to other currencies. Since the

economy of Japan The economy of Japan is a Developed country, highly developed mixed economy, often referred to as an East Asian model. According to the International Monetary Fund, IMF forecast for 2025, it will be the fifth-largest economy in the world List o ...

is highly dependent on exports, this can cause Japan to fall into an economic

recession In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be tr ...

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

History

Origins

The origins of endaka began in 1971 with the

Smithsonian Agreement The Smithsonian Agreement, announced in December 1971, created a new dollar standard, whereby the currencies of a number of industrialized states were pegged to the US dollar. These currencies were allowed to fluctuate by 2.25% against the doll ...

. The term was coined with the first usage in 1985 during the

Plaza Accord The Plaza Accord was a joint agreement signed on September 22, 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United Kingdom, and the United States, to depreciate the U.S. dollar in relation to the French ...

, in which the

yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar and the euro. It is also widely used as a third reserve currency after the US dollar and the euro. T ...

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-postwar high of 79 to the dollar. Japan has struggled to keep its yen low to aid exporters. China, Singapore and Hong Kong typically have a target exchange rate, and they buy foreign currencies to maintain that target rate. However, China, like Japan, has begun to drive itself into a corner with its huge surpluses as well. After the severe housing crisis bubble burst in 1992, Japan's interest rates sank to near zero. Coupled with gigantic savings accumulated over decades from overseas surpluses, and soaring yen, Japan tried a number of measures to weaken its currency. First it began to buy up properties overseas, such as the

Rockefeller Center Rockefeller Center is a complex of 19 commerce, commercial buildings covering between 48th Street (Manhattan), 48th Street and 51st Street (Manhattan), 51st Street in the Midtown Manhattan neighborhood of New York City. The 14 original Art De ...

New York City New York, often called New York City (NYC), is the most populous city in the United States, located at the southern tip of New York State on one of the world's largest natural harbors. The city comprises five boroughs, each coextensive w ...

in 1990, as well as investing in US corporate bonds. After huge property losses, it gave that up. Another was state intervention BOJ in

foreign exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold and silver held by a central bank or other monetary authority that are primarily available to balance payments of the country, ...

, which it ultimately gave up in 2004 after accumulating nearly a trillion dollars. Japan also invested directly in

Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the New ...

and other mortgage bonds, holding close to a trillion dollars in those bonds. Yet another measure was to loan out hoards of money to US and European banks at zero percent rates, which began in earnest in 2004, also known as the massive carry trade (via yen-denominated bank loans to overseas investors). US and European banks then loaned this money out to home owners in America, as well as big property investors in the Middle East. This effectively kept the yen at 120 or weaker levels to the dollar. Endaka was tipped off again 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 The carry of an asset is the return obtained from holding it (if positive), or the cost of holding it (if negative) (see also Cost of carry). For instance, commodities are usually negative carry assets, as they incur storage costs or may suffer f ...

, where loans were made at near zero 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 2011, the yen had touched 81.1129 per USD. Gary Dorsch of ''Global Money Trends'' estimated in 2008 that US$6 trillion (¥610 trillion) was involved in yen carry trade. Japan saw renewed endaka after the massive

2011 Tohoku earthquake and tsunami Eleven or 11 may refer to: *11 (number) * One of the years 11 BC, AD 11, 1911, 2011 Literature * ''Eleven'' (novel), a 2006 novel by British author David Llewellyn *''Eleven'', a 1970 collection of short stories by Patricia Highsmith *''Eleven'' ...

, briefly hitting 75.5 to the dollar. Again, after the 2011 U.S. debt ceiling crisis, the yen slowly but surely climbed its way back to after tsunami highs. The yen remains under immense pressure due to accumulated wealth from overseas and a current account surplus, despite a $5–10 billion recurring monthly hit due to imported fossil fuels after a nuclear shutdown. With

China China, officially the People's Republic of China (PRC), is a country in East Asia. With population of China, a population exceeding 1.4 billion, it is the list of countries by population (United Nations), second-most populous country after ...

looking to diversify its $3 trillion of foreign exchange into yen, a weakening Japanese yen is limited by Chinese purchases.

Timeline

*1971: The

revalued the yen from 360 to 308 per dollar. *1973–1: The yen was weakened during the

energy crisis An energy crisis or energy shortage is any significant Bottleneck (production), bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particu ...

. *1978: The yen was strengthened to 180 per dollar, resulting in the first endaka. *1979–1984: yen remained between 200–250 per dollar. *1985: The

revalued the yen from 250 to 160 per dollar. *1986–1988: yen further strengthened to 120 per dollar, resulting in the second endaka. *1989–1995: yen fluctuated between 100 and 160 per dollar. *1995: yen surged to a then-postwar high of 79 per dollar, resulting in endaka fukyo. *1997:

Asian financial crisis The 1997 Asian financial crisis gripped much of East and Southeast Asia during the late 1990s. The crisis began in Thailand in July 1997 before spreading to several other countries with a ripple effect, raising fears of a worldwide economic meltd ...

, yen fell to 147 per dollar. *1997–2004: The

Bank of Japan The is the central bank of Japan.Louis Frédéric, Nussbaum, Louis Frédéric. (2005). "Nihon Ginkō" in The bank is often called for short. It is headquartered in Nihonbashi, Chūō, Tokyo, Chūō, Tokyo. The said bank is a corporate entity ...

fights yen appreciation, surging foreign exchange reserves, ballooning national debt and the endaka fukyo. *2004: The

abandons active intervention, promotes yen carry trades. *August 2008: The yen strengthened on oil collapse. This sets off a carry trade reversal which cu
$5.9 trillion of yen carry and $1.2 trillion of yen loans (7.1 trillion USD)
adding to a severe international

credit crunch A credit crunch (a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit crunch generally ...

which led to the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

. *2010: The

euro area crisis The euro area crisis, often also referred to as the eurozone crisis, European debt crisis, or European sovereign debt crisis, was a multi-year debt crisis and financial crisis in the European Union (EU) from 2009 until, in Greece, 2018. The ...

caused the yen to rise to a nine-year high against the euro, rising up to 107 per euro. *2022: The yen weakens to 145 per dollar, prompting intervention by the Bank of Japan to stabilize exchange rates.

External links

Quantifying the Yen Carry

References

{{Reflist 1985 neologisms Finance in Japan Foreign exchange market International macroeconomics Foreign trade of Japan

History

Origins

Timeline

See also

External links

References