How  does the fact that the yen is considered a safe-haven currency have the   potential to impact the Japanese economy?

The yen is considered a safe-haven currency due to the fact that it tends to appreciate in times of economic turmoil or market uncertainty. This can have both positive and negative impacts on the Japanese economy depending on how investors respond. On the plus side, when people purchase more yen as a way to protect their capital during tumultuous times, it can help boost demand for the currency which could lead to an appreciation of its value. This can be beneficial for Japanese exporters since they receive more money when their goods are sold overseas which could help incentivize them to increase production and hire more workers (Bank of Japan, 2018). Furthermore, a stronger currency also has deflationary effects which helps reduce prices levels within the country making it cheaper for residents to buy imports while also helping businesses cut costs by lowering wages (Bank of Japan, 2018).

However there are some downsides associated with this phenomenon too such as reduced liquidity as fewer foreign companies may be willing to invest in Japan due to higher costs associated with borrowing money in yen compared with other currencies (Tsubota & Ueda, 2017). Additionally, if investors suddenly rush out en masse then this sudden decline in demand could cause drop in prices leading inflationary pressures and weakening domestic consumer spending power over time (Tsubota & Ueda 2017).

In conclusion, although being viewed as a safe-haven currency generally provides many benefits for the Japanese economy such as increased exports and reduced cost levels; there is still potential risk involved should investor sentiment shift quickly without warning resulting in falling prices or lack of investments from abroad.