500 Yen to the US$?

[Yukkuri Kame]

Japan is one of the world's biggest creditor nations, it continues to run a balance of trade surplus, and private debt is relatively low.

Historically, the balance of trade has been favorable...since 09, it has been more negative than positive.



As for being a creditor... it is the BOJ, and private corps that hold the cash, not Japan. Japan is the most indebted nation in the world, as Debt:GDP shows.

Global investors recognize this, which is why they're parking their funds here and nowhere else.

Global investors are also capable of recognizing that the Japanese paradox can't last forever. Japan has gotten credit downgrades recently... the perception is changing.

Anyhoo, all these analysts (the Einsteins who failed to spot the 2008 meltdown) said the yen would sink from late 2011 onward. They've been wrong, wrong and wrong in the last few years. I'm baffled as to why they still have any credibility.

My wife and I saw the 2008 meltdown in 2003 - we were shopping for a house in the states at the time and it smelled like a bubble, so decided not to buy. We were right, but 5 years early.

I have no crystal ball to see the timeline for Japan's debt implosion...but it will come. The same is true for the US dollar, so 500:1 doesn't really mean anything. We are better off comparing to gold or oil.

[fxgai]

What actually happens to the yen through the impending crisis in Japan is not so set in stone, IMO.

I'm not claiming to be a financial expert, but from what I have read...

As Japan's debt undergoes further downgrades, Japanese institutional investors who hold most of the debt may be forced to sell to abide by their rules regarding the investment grade. This will push yields up, which would narrow the yield differentials with the US. This could result in the yen appreciating versus the dollar, rather than weakening. There will be yen-negative factors at play as well though I imagine. It will all depend on how fast everything happens, what the market decides to focus on, etc etc.

At the end of the day, I'll do with my yen not what I think I should do (sell it) solely on any fundamental views I have, but give priority to what is actually happening with the forex rates.

Incidentally, USD/JPY has been looking pretty strong the last 3 days (up to 80.30 at time of writing). Some are seeing the pattern on the daily chart as an inverse head-and-shoulders, and personally I find the way the rate has been moving on shorter term charts over the past few days has been very reminiscent of earlier in the year when USD/JPY blew all the way from 77 up to 84+ in the space of a few weeks, before it fell back down, presumably in relation to US treasury yields slipping lower on all the Eurozone drama. When it moved up, it moved up with only the shallowest of dips along the way, not giving much opportunity for the hesitant to get on the train. With the Greek election being safely out of the way for now, it looks to me like the players who were selling yen earlier in the year may be back trying to have another go with the close-your-eyes-and-sell-yen strategy now. I'm currently on this band-wagon since yesterday, so we'll see how things go over the next few weeks.

[ozzijp]

But even at near zero rates there aren't enough borrowers to keep the supply expanding.

Not even close and this will get a lot worse.

The good news is that there are remedies, e.g. immigration. This however, is unlikely to happen in the next 5 years but may become more palatable as the old guys die off.

Yen certainly can't strengthen much from this point, so if you are a lad or lass who sees no long term desire to stay in Japan, now wouldn't be a bad time to be sending some money home imo.

I have mentioned this in previous threads but no one really knows the direction of currencies (and that is why I have never "played" them). If anyone tells you they do (with long-term success), they are without a doubt, full of it.

[Super Grover]

What actually happens to the yen through the impending crisis in Japan is not so set in stone, IMO.

I'm not claiming to be a financial expert, but from what I have read...

As Japan's debt undergoes further downgrades, Japanese institutional investors who hold most of the debt may be forced to sell to abide by their rules regarding the investment grade. This will push yields up, which would narrow the yield differentials with the US. This could result in the yen appreciating versus the dollar, rather than weakening. There will be yen-negative factors at play as well though I imagine. It will all depend on how fast everything happens, what the market decides to focus on, etc etc.

At the end of the day, I'll do with my yen not what I think I should do (sell it) solely on any fundamental views I have, but give priority to what is actually happening with the forex rates.

Incidentally, USD/JPY has been looking pretty strong the last 3 days (up to 80.30 at time of writing). Some are seeing the pattern on the daily chart as an inverse head-and-shoulders, and personally I find the way the rate has been moving on shorter term charts over the past few days has been very reminiscent of earlier in the year when USD/JPY blew all the way from 77 up to 84+ in the space of a few weeks, before it fell back down, presumably in relation to US treasury yields slipping lower on all the Eurozone drama. When it moved up, it moved up with only the shallowest of dips along the way, not giving much opportunity for the hesitant to get on the train. With the Greek election being safely out of the way for now, it looks to me like the players who were selling yen earlier in the year may be back trying to have another go with the close-your-eyes-and-sell-yen strategy now. I'm currently on this band-wagon since yesterday, so we'll see how things go over the next few weeks.

And to whom could they sell? Who'd buy it? I am being serious.
78.6-80 is just about the lowest ever. I think it is a great time to either be buying stuff (abroad) with yen or converting some. I'm doing both.

[fxgai]

I imagine some segment of the investment community would be interested, but no idea at what level that interest might start...

Yeah I guess the yen is only 5% off it's all time highs. There's probably a fairly high probability that at some time in the next 10 years it will sell off decently.

But at the same time I know some elderly people who bought dollars at 120 as they thought they were cheap then, relative to years prior. I remember some guy was harking back to me about his college days when the rate was 180. I myself still have a 3K or so USD that I bought around 95 when they seemed cheap. (I bought more at the time but subsequently sold most of it for a loss).

At least as of today the long term the trend is still yen strength IMO, but it could be that we are near the bottom or might have even seen it. I'm not going to bet my whole pot on it yet though.

[rainbowtokyo]

Kudos to Majestic who crated this thread a few months ago.......

At the time I wrote:

"A major devaluation is just months away. The Japanese government and central bank have no other alternative. That said, it won't be anything like 500Yen to the dollar.

An interesting report from an interesting economist: http://www.cnbc.com/id/46863460/The_...oning_Andy_Xie '

[kurogane]

Yes, dear, you called it.

And a good call it was

Now stop spamming old currency threads, and contribute as we know you can.

[gaijinmx]

$95.50 usd/jpy time to buy some yen or wait for 100???

[fxgai]

$95.50 usd/jpy time to buy some yen or wait for 100???

This thing is still blasting higher, IMO. Doesn't look like the yen selling has lost momentum.
http://mediaserver.fxstreet.com/Repo...0307213200.png

Even if USD/JPY were to dip back below 95 in the short term I think you'll find that such a move would be met with plenty of grateful yen sellers, and USD/JPY will continue upwards. IMO you should hold off buying yen until a) you absolutely need them, b) there is a marked turn for the worse in the global economy, or c) the Japanese government starts talking up the yen.

[gaijinmx]

fxgai, thanks. I thought Abe had talked up the Yen prior to the G20 meeting a few weeks ago when it was at 93 USD/JPY. He said the fall of the Yen was "too far, too fast", etc. Now we are at 96.

I guess Japan does want a weaker Yen, but will the inflation of foreign goods (from consumer to oil) shock the economy with more negative effects than positive? The consumption tax increases will already strain the Japanese consumer, so I feel the inflation target on top of higher taxes will kill consumption and basically result in a recession.

If BOJ keeps printing money like crazy and public debt gets even further out of control then the Yen could easily plummet another 30%, imagine USD/JPY 125 = lots of new foreign faces around Japan as people move into a "cheap" country.

Im buying some weekly calls on Yen futures, just hedging my USD. Is your handle a reference to your job? fx trader/broker?

[fxgai]

No I'm not a broker or anything, I'm just a gaijin trading some fx on the side. Got into it around 2008 or thereabouts, when the yen was at 95 yen to the dollar "strong"!

I too was skeptical about the yen weakness when Abe opened his flap about inflation etc a month before the election last year, but the foreign investment/speculation community seems quite convinced that what Abe is saying is going to is a big change, and I admit to have been surprised about how consistent in voice his team have been about the issue. At the same time, Japan has been running trade deficits, the US economy relatively is not looking too shabby - both headwinds for the yen. The G7 nations haven't been complaining too loudly about the yen weakness either.

Still, the wheels could fall off Abe's cart easily enough as we know from his first term, and I'm also not convinced that BoJ Shirakawa was wrong in thinking that Japan's deflation isn't just a monetary issue as new governor Kuroda etc suggest. As you say, the risks from inflation aren't getting a lot of attention now, but some influential Japanese folks (if not the ones currently in power) do see benefits of the strong yen in terms of keeping a lid on import costs.

So at the moment I am on the yen weakness bandwagon myself, but trying to temper my enthusiasm with a good dose of skepticism...

[Koenji]

Kudos to Majestic who crated this thread a few months ago.......

At the time I wrote:

"A major devaluation is just months away. The Japanese government and central bank have no other alternative. That said, it won't be anything like 500Yen to the dollar.

An interesting report from an interesting economist: http://www.cnbc.com/id/46863460/The_...oning_Andy_Xie '

Thanks for posting that link. It's always fun to go back and read what some of the so-called "experts" predict.

To whit: "The transition from a strong to weak yen will likely be abrupt, involving a sudden and big devaluation of 30 to 40 percent....The odds are that yen devaluation will occur over days."

LOL, it's taken 2 and half months for the yen to fall steadily and moderately against the dollar, by just over 20 percent. Hardly "abrupt." And hardly "big." So where's the big pop in the bubble, upon which this article is premised?

[fxgai]

Experts when formulating their predictions have to make reasonable assumptions about future realities, an impossible feat.

The biggest flaw in Xie's argument was the ultimately false premise of a strong yen / ongoing deflation. Xie didn't mention the word "inflation" a single time in his article, while mentioning "deflation" around 20 times.

In reality, Abe, who was a failed former PM, got his shiza together, took control of the LDP, and led them to an overwhelming victory over the DPJ in early elections on a platform of reflation.

A year ago, this might have sounded more wacky that Xie's base case.

[Koenji]

Xie's assertion that all Japanese "believe in a strong yen" is absurd. I recall plenty of hand-wringing among just about everyone. He also doesn't acknowledge Japan's safe haven status as a factor behind the record-high yen.

Above all, his basic premise is that the yen's sudden and drastic drop would be part of an extensive bursting of a bubble that would destroy the status quo. Judging by what's actually taking place, that's way, way off base. When "analysts" get things this far wrong, it underscores that they don't really know what they're talking about. A friend of mine is an analyst at an investment bank. His major in university was history, and he has never had any practical experience in tech field in which he is supposed to be an expert.

[chiba]

I recently visited Japan and travelled around a bit. One think I noticed compared to the UK was that all shops seemed occupied. Compare this to the UK where the high street is filled with vacant shops and what shops remain are mostly pound shops and pawn brokers. Add to that no pot holes in the roads.
On the surface Japan seems fine compared to the mess in the UK.

I also noticed that most shoppers in the department stores tended to be older, so it's obvious who has all the money in Japan.

I think Japan will end up destroying itself as the next generation just aren't the same. Japan was made great by the post war generation that had suffered, but today's generation have been spoilt.

[kurogane]

I don't get the connection to foreign exchange, but I agree with you except on the last part.

It was the pre-war generations that suffered. The immediate post war generation didn't actually suffer that much, they just eagerly embraced a masochistic work ethic and now moan on like old people do everywhere, but at least they got paid for it. They are one of the most self-congratulatory group of incompetent buffoons allowed to live and breathe. The current mess is all down to them, and they should be beaten like dogs for it.

What they are doing now is choking Japan dry, by neither reitiring nor spending, and the so-called spoilt generation will have to clean up their mess.

The only really spoilt generation in Japan are the 45-60 year olds, and even they haven't got the sweet financial ride that those who came of age in the 50s and 60s got, especially the poor sops that slaved like dogs to save a down payment on a Bubble Era priced house that is now worth barely 1/3 of that.

I assume you would agree that there are similar dynamics at work in the UK and most of the first world?? I mean social dynamics, as in whiny old parasites who should at least retire and preferably die, rather than structural economics.



Anyways, BOT:

nice analysis Koenji.

[chiba]

Yes, the UK is in a mess. The post-war generation have all the assets such as expensive houses and pensions saved. Average salary is something like £25K, but houses on the street I grew up on cost £650K+.
Health service has long waiting lists...
There are loads of young people out of work too.

It's all better than in southern Europe though, so they all come here to work for peanuts.

Yes, it's nothing really to do with the exchange rate, just looking for signs of collapse.

One thing I was wondering about is who is going to provide all the service in the future. Japanese are used to good and prompt service like when you eat out. Are these jobs going to be done by robots?

[iamsen]

A friend of mine is an analyst at an investment bank. His major in university was history, and he has never had any practical experience in tech field in which he is supposed to be an expert.

I wonder about that a lot too. I did Industrial Design and somehow Goldman found me and asked me to come in for an interview. I'm fairly good at math but I've not touched an economics textbook even once in my life.

[johnnyG]

http://finance.yahoo.com/news/abenom...072528841.html

[cucashopboy]

http://finance.yahoo.com/news/abenom...072528841.html

Disagree with the article. Japan is heavily dependent on imported raw materials and food. A significantly weaker yen will increase the cost of imports which will be passed onto the Japanese consumer, which will cause inflation.

[chiba]

Do you think Japan is playing a game with the USA?

In the 50's and 60's Japan was very unstable and they could've turned to communism. Turning to manufacturing and exporting produce to the USA and Europe saved them and kept them in the capitalist system. If capitalism fails in Japan and the USA doesn't bail out Japan, then Japan can go it's own way. I mean, Japan won't be able to pay the US to defend it if it goes completely bankrupt. That's my understanding, that all the US bases are actually paid for by Japan. If the US pulls out of Japan, they would have to re-arm and perhaps that's what they want. Deep down they must hate the US presence. So, maybe Japan is playing to go bankrupt as it knows that will mean the eventual withdrawal of the USA.

[kurogane]

You've vastly overestimated the Japanese animosity to a continued US presence and the continuation of the alliance.

Most people couldn't care less because they never see it, or Them, and only the people near the bases seem to have any opinion one way or the other.

What you did miss out on was how much the Japanese despise the Chinese and the Koreans. Never underestimate the common sense of the average Japanese.

[chiba]

You've vastly overestimated the Japanese animosity to a continued US presence and the continuation of the alliance.

Most people couldn't care less because they never see it, or Them, and only the people near the bases seem to have any opinion one way or the other.

What you did miss out on was how much the Japanese despise the Chinese and the Koreans. Never underestimate the common sense of the average Japanese.

Yes, I take your point.

The thing is China and Korea will become more powerful, especially China. What's going to happen in 2017 when China overtakes the US, who will Japan look to for the future.