It is
not exactly a collapse of course, but it is certainly a readjustment
that properly reflects the collateral position Japan occupies with
China and the USA. It is still noteworthy and suggests a strong
burst in Japanese growth is now pending. At the same time it is
defensive and markets out uncertainty regarding both China's and the
USA's financial posture.
In
the meantime, Japan is liquidating the tsunami damage in good order
although it will require several more years for that to be finished.
Rumors
of war are more to do with internal infighting in China than anything
else.
Here's What's
Behind The Collapse Of The Japanese Yen — The Biggest Economic
Story In The World
Joe Weisenthal | Dec. 27, 2012
Joe Weisenthal | Dec. 27, 2012
Earlier we joked that
lost in all of the Fiscal Cliff shuffle was the fact that the yen has
been getting clobbered.
SocGen's FX guru
Kit Juckes jokingly responded that far from getting "lost"
the yen carnage was actually the only game in town
Indeed this is really the huge story in global markets right now. In addition to being a major shift in one of the world's biggest and strongest currencies, it affects all sorts of manufacturers who do business in yen, or compete with companies that do business in yen.
Here's a three-year
chart of the CurrencyShares Japanese Yen Trust, an ETF that's
designed to track the yen. As you can see, it's been collapsing, and
is now at a level that hasn't been seen in over two years.
what's causing the
yen carnage?
There's actually no
one thing.
But a few of them are:
-- Shinzo Abe: Japan's new Prime Minister (who took office
yesterday) has pledged to force the Bank
of
Japan into ultra-easy monetary policy, and he's even favored bond
purchases for the direct purpose of funding stimulus money.
of
Japan into ultra-easy monetary policy, and he's even favored bond
purchases for the direct purpose of funding stimulus money.
-- Japan's trade
situation also seems to be deteriorating. Whereas previously the
country was running big, consistent trade surpluses, it's now in
steady trade deficit.
-- The US economy is strengthening. This isn't about the yen, but
it does help boost what the yen is being compared to, the dollar. A
strengthening economy helps contribute to rising US interest
rates,
which will help the US dollar.
,
which will help the US dollar.
-- There's a belief
that the endgame is in sight for the Fed to start ending its
ultra-easy monetary policy. Things aren't going to change overnight,
but at the current pace of economic improvement, the Fed's goals
could be hit in late 2014, which is earlier than the previous 2015
tightening guidance. A tighter US monetary policy would benefit
the dollar against the yen.
-- End of the Eurozone
crisis. Japanese assets had been seen as "safe-havens" to
flee too during the crisis. With the Eurozone crisis ending, that
safe-haven bid begins to deteriorate.
-- Fear of war? Also thanks to Japan's new PM Shinzo Abe, the
country is likely to adopt an even more aggressive, militaristic
stance towards China. One professor in Australia predicts war. As
Matt Yglesias notes, any war (or war preparations) would likely be
funded by aggressive money creation. More yen weakening.
-- Japan's economy is
bad. In addition to all that, the economic data in Japan is
deteriorating again, creating more reason for the Bank of Japan to do
new measures.
One interesting trend
is that a lot of these developments are fairly new. So
there's a confluence of a lot of stuff happening right now.
Two other notes:
One is that this isn't
necessarily a bad thing at all. A weaker yen is itself a form of
stimulus, and should help the country's domestic manufacturers.
Nomura recently upgraded the Japanese automakers specifically on
this, and in general the Nikkei has been on a total tear.
The other is that none
of the above have anything to do with the typical Japan bear
arguments about massive national debt and bond collapse. Those things
that people freak out about don't have much to do with things.
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