Financial markets in the global economy influence each other. Considering the advanced trade relations of the modern-day world, the effect of big corporations and multinationals on economies around the globe is huge. The stock market of one major economy has ramifications for other economies.
The U.S. and Japanese economies are bound together by both bilateral agreements and the global economy. What happens in the U.S. stock market, therefore, has visible effects in japan. In recent years, FDI trends have hit levels of 27%, representing a slight drop in FDI flows. Still, this number is a good indication of just how much world economies depend on each other. The following is an overview of how the U.S. stock market affects Japan.
Trading Trends
Consumer spending depends on the economic welfare of citizens. When the U.S. economy is fairing well, consumers are more likely to invest in stocks. Consumer spending in the U.S. alone is reported at $14.24 trillion in 2019. A strong stock market is thus an indicator of a consumer base that is ready to spend. Japan is a leading manufacturer of electronics and various consumer goods that Americans use. For American citizens, buying the goods they need from Japan depends on the performance of the local economy. Local consumers are likely to spend more on Japanese goods when the stock market at home is fairing well. Higher spending on goods from Japan results in higher incomes for the Japanese economy too.
Japanese Investment
Since the U.S. stock market is attractive to investors from around the world, there is always a huge interest from investors in Japan. Such investors are interested in dividend stocks across various local and foreign companies in the U.S. stock market.
When individual and corporate investors from Japan buy stocks in the U.S. market, they contribute to the welfare of the U.S. economy. If the market performs well and returns profits, the Japanese investors might decide to sell their profits and invest the money back home. This ultimately results in bigger spending in the Japanese economy and economic welfare.
Competition in the Market
The Japanese market has a population of 127 million consumers, and market experts have been keen on advising American investors to explore the market more. Investors entering the Japanese market would likely face competition from local companies. Competition between companies has bearing on the economy of Japan. There are many competing companies listed in both the U.S. and Japanese stock markets.
In situations where these companies face-off with each other, the effects can be visible in the economy. In an example where a U.S. company listed on the U.S. stock market is competing with an alternative Japanese company, the value of the competing company will likely drop as a result of competitive advantage. This scenario would be similar but inverse in the Japanese stock market where the home company will have a competitive advantage. The losing company ultimately sees a drop in value and this affects the economy.
Stock Market Analysts
Stock market analysts also play a huge role in determining the direction the economy takes. The economic forecasts made by financial analysts have impacts on economies across the world. This is the case even when the focus of the analysis is on one major economy. U.S. stock analysts frequently release reports that include economic forecasts. These reports are read by experts the world over. Since the economy of the U.S. is tied to other economies around the globe, experts in Japan and other places are likely to make their decisions based on U.S. economic reports.
Summary
The global market’s stock market cap is $80 trillion. All nations around the world are connected through it. Economic, social and political decisions in various countries also have effects on other countries in the world. The globe is not only connected through the trade of crucial commodities like oil, but it is also connected through business. The various multinational companies that have a global reach have enough power to influence economic trends in multiple countries.
The U.S. stock market is home to investors from Japan and around the world. Not only is the Japanese economy directly linked to the U.S. market, but it is also tied to the stock market in the U.S. The above points illustrate the key factors of the U.S. stock market that influence the economy of Japan.
