German and Japanese companies are competitors in both their domestic markets (bilateral trade) and third-country markets. As the share of bilateral trade in both exports and imports is relatively small, the negative impact of the JPY's depreciation on Germany's overall economy is limited. The share of German exports to Japan in overall deliveries amounts to only 1.6% and the share of imports from Japan to 2.4%.

At the same time, the two countries differ considerably as regards their most important exports markets. While Europe is Germany's most important sales market by far, in the case of Japan it is Asia. This relatively minor regional overlap is reflected in the lower weighting of the JPY (approx. 7%) in the nominal effective euro exchange rate versus its 20 major trade partners. A 40% depreciation of the yen therefore results in an appreciation of the effective exchange rate by only about 3%. This regional structure leads us to conclude that the adverse effects of a JPY depreciation are unlikely to hurt the overall German economy.

Eoin Treacy's view Germany has been one of the greatest beneficiaries of the Euro's creation not least because it gave its efficient manufacturers an advantage in currency differentials against regional competitors. The Euro was a catalyst for European companies to expand aggressively within the currency union as they sought to gain the best possible advantage from the lowering of trade barriers. As a result many companies relegated expansion in Asia, Latin America and Africa to the back burner. However, the contraction of the Eurozone's economy over the last few years has made the expansion of markets in the world's major population centres all the more alluring.

Therefore while German companies focused attention on Europe and Japanese companies on Asia, in future they are more likely to be competing for the same markets as aspirations turn to the global economy and the rise of the middle classes. This would suggest that the EUR/JPY cross rate is likely to garner increasing attention in both jurisdictions particularly as the Yen's devaluation progresses.

The Euro lost downward momentum against the Yen from early 2012 and failed to sustain the break below ¥95 in July. It then rallied back up to test the upper side of its range and broke successfully above ¥110 in December. The rate consolidated mostly below ¥127 from February and broke upwards in mid-April. A sustained move below the 200-day MA would be required to begin to question medium-term scope for further Euro strength.