Japan is a cultural, political and economic powerhouse with a proud history and an exciting future. This week, we thought we’d stick its domestic economy under our mighty microscope and see what makes it tick and what the plan is, in light of the recent meaningful changes at the top of the Japanese food chain.

What Happened in Japan Recently?

Like any good royal TV drama, if you haven’t been paying attention then you’ve missed out on an enthralling mixture of abdications, coronations and national holidays. We are, of course, talking about the new Japanese emperor, who was crowned earlier this week. Japan is now ruled by Emperor Naruhito, following the abdication of his father, Emperor Akihito.

Prime Minister, Shinzo Abe, gave a speech at the coronation, stating: “…we are determined to create an era where Japan has a bright future, one which is peaceful, full of hope and we can be proud of, and where people cultivate culture in harmony.”

A vision we can all applaud, now let’s see what his royal highness Naruhito, is inheriting…

A Hub of Innovation

Canon, Fujitsu, Toyota, Casio, JVC, Nintendo, Honda… We could go on, and on, and on — but we won’t. You get it! Japan is, and has always been, a tech behemoth. It currently ranks sixth in the Global Competitiveness Index, scoring BIG points for patent applications and R&D expenditure.

However, the latest Global Competitive Index has also warned that Japan could maybe do a little more to encourage an entrepreneurial culture and squeeze in some more creativity and critical thinking!

2. An Ageing Population

Hmm, this one’s not so good! Japan’s population is shrinking and ageing super-fast. It’s projected that, by 2040, one third of Japan’s population will be aged 65 and over. And an ageing population can have a BIG impact on production and a country’s overall growth.

But it’s not just an inability to produce that threatens to cast a shadow over the economy, it’s the future inability to innovate that might be just as worrying. Again, young people are dreamers… Older people can be a little more cautious, calculated and, to be honest, realistic! Countries need a fair share of risk takers and Japan is slowly running out of them.

What does this all mean, though? Slow growth affects the economy. A poor economy affects the domestic currency and, as a trader, that’s definitely something you want to look out for!

3. A Slightly Uncertain Economic Future

If you’re even slightly interested in trading Japanese Yen (JPY) pairs, this is a biggie for you.

Prime Minister Abe’s monetary easing, fiscal stimulus and structural reform policies — known as Abenomics — are bringing Japan back on track for one of its longest ever growth streaks. However, events overseas, with the slowing global growth and constant economic uncertainty, are a real threat to this record streak. How long will it last? How long is a piece of string?

How Did the Markets React?

Tokyo stocks are in a bit of a sorry state at the moment. A forced 10-day holiday was imposed to commemorate the historic coronation and Japanese shares opened lower and remained negative, following this extended holiday.

The Nikkei index has now sunk to an almost five-week low, but it’s got nothing to do with abdications, coronations, or sushi — for that matter.

Investor sentiment has been a bit hurt by the escalating trade row between the US and China that has renewed concern about global growth (as if we needed reminding!).

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