Study On Effect Of Yen Exchange Rate Fluctuation On Japan’s Foreign Direct Investment

Foreign direct investment refers to international capital flows in the manners ofmultinational operating.The motives include: acquiring raw materials, seekingknowledge, reducing costs, learning technology and avoiding trade barriers. Foreigndirect investment have played a positive role in promoting economy growth andincreasing international trade, optimizing industry structure and improvingemployment.As the world’s second largest economy, Japan, whose foreign directinvestment began in in the mid-1980s of the20th century, foreign direct investmentdevelop rapidly and Japan become the great one of the powers.The exchange rate isone country’s currency Conversion Ratio to another country’s currency, the change ofexchange rate have a significant impact on a country’s import and export volume,price levels and capital flows.It not only regulates a country’s balance of payments,but also the important means of macro-control. After the Plaza Agreement in1985, asignificant appreciation of the yen, then the bubble crisis of the1990s, the Asianfinancial crisis and the global financial crisis have made the exchange rate of yenfluctuate frequently.The relationship between the fluctuations of the exchange rate and OFDI hasbeen the focus point of domestic and foreign economists debate, but no systematictheoretical system has formed.In this article, Firstly, summarizing and commentingthe literature from domestic and foreign scholars; then reviewing the exchange ratehistory of the yen and foreign direct investment history after the Plaza Agreement;then expounding the theory of Foreign Direct Investment and the exchange ratedetermination theory and analysis the transmission mechanism of the exchange ratefluctuations having an impact on OFDI. The last part is empirical examination, firstlyestablishing an empirical model, then obtaining the regression equation and analysisthe results of empirical examination, finally making suggestions on how to increaseforeign investment in China at the present stage.In the empirical part, we draw conclusion that Japan investment to China havetwo types of the export-oriented and the market-oriented. Facing the Japan’squantitative easing monetary policy and rising labor costs of China, China needs to take some measures to attract foreign capital inflows and to promote economydevelopment.