How Does the U.S. Stock Market Affect Japan?

In a global economy, the financial fortunes of corporations and nations are tied together across international borders. This is certainly true for Japan and the United States. Changes in the U.S. stock market impact Japan in a number of ways, illustrating how global economics work and why the world economy functions as a single complex system, not a series of isolated economies.

Japanese Investors

Japanese investors, including individual investors and financial institutions such as banks, own shares of American companies. This is one of the most direct ways that changes in the U.S. stock markets impact Japan. As those American companies gain or lose value, Japanese investors see their investment values rise or fall. When U.S. stocks surge, Japanese investors may choose to sell for profits, bringing money back into the Japanese economy for spending or investing in Japan.

Trade

U.S. stock market behavior affects Japan by determining how much money Americans are willing to spend on Japanese goods. Since Americans invest in U.S. stock markets heavily, a strong stock market can mean more consumer spending in the United States. Japan has a large manufacturing sector, producing many of the cars, electronics and consumer goods that Americans buy when their investments are doing well. This results in higher earnings and profits for Japanese companies and an improved Japanese economy.

Competition

Changes in American stock markets can inversely impact Japan in some cases. This happens when U.S. and Japanese companies are in direct competition with each another. A rise in the share price of an American company listed on a U.S. stock exchange may signal a drop in the share price of a Japanese company that provides similar goods and services. This type of change may come as a result of earnings reports or product releases that show the American company gaining a competitive advantage. In this example, the result for Japan would be a drop in the value of a company listed on a Japanese stock market. The opposite scenario can also occur, with the Japanese company gaining value at the expense of a U.S.-based competitor.

Analysts

Financial analysts use data from around the world when making economic forecasts. Their findings and predictions impact American and Japanese economies by influencing how investors think and affecting the decisions they make. Changes in the U.S. stock market may cause analysts to alter their forecasts for worldwide economic growth, providing new data for Japanese investors and financial firms to consider when making decisions about their investments and spending behavior.