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Japan’s currency bursts its post-bubble economy

Mista

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As said Ecb has no mandate to intervene.
There is a correlation between interest rates to the exchange rate of the dollar to euro and yen. The higher the US interest rate the higher the value of dollar. That’s because money managers shift assets from Europe and Japan to America. That in turn put pressure on euro and yen.

There are multiple factors which determine the exchange rates, and interest rates is simply just one of them. For Japan which have large amount of net external assets, forex intervention is a tool available for them to determine the exchange rates. Japan can easily defend their currency if they are really committed to it. No money manager can fight the BoJ because foreigners don't even own as much Japanese assets to sell compared to Japan's external assets.

Is that really that hard to understand?

And Japan's monthly trade deficit is less than $20 billion. To Japan's foreign exchange reserves and assets. They can persist for more than ten years.

Japan has a trade deficit but a current account surplus. That's because the returns they get from their net external assets is greater than their trade deficit.


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Viet

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There are multiple factors which determine the exchange rates, and interest rates is simply just one of them. For Japan which have large amount of net external assets, forex intervention is a tool available for them to determine the exchange rates. Japan can easily defend their currency if they are really committed to it. No money manager can fight the BoJ because foreigners don't even own as much Japanese assets to sell compared to Japan's external assets.

Is that really that hard to understand?



Japan has a trade deficit but a current account surplus. That's because the returns they get from their net external assets is greater than their trade deficit.


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That makes no sense. That doesn’t explain why the Yen decline so fast.
About Japan assets, it’s working both ways. Japanese investors withdraw the money from Japan and pour money to the US, because there is money to make. The BoJ just sold $20 billion to arrest the yen decline however without success.

That would not help the yen, either if they sell another $20 billion or $100 billion. They can try with selling the entire dollar holdings. We will see.
 

Viet

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It’s a good summary by the CME.


  • Relative monetary policy: Expectations for rapid Fed rate rises have also boosted USD
  • Relative growth: The U.S. economy has also been growing much more quickly than Japan’s recently
  • The U.S. government spending is shrinking much more quickly while the Japanese budget deficit continues to grow with increased spending and debt finance.
  • Higher energy prices/falling trade surpluses have weighed on JPY
  • Increased relative risks, especially as regards JPYs role in the FX carry trade weigh against the yen.
 

Mista

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That makes no sense. That doesn’t explain why the Yen decline so fast.

Because you are assuming that the BoJ is really committed to propping up the Yen. $20bil is just a small change for Japan. A lower Yen will boost their export competitiveness and get them out of their deflationary spiral with greater external demand. Hiking interest rates is much more expensive way to defend the currency and it will create more problems. Their debt to GDP is >200%, how much additional interest expense will they incur for every percentage point hiked? And why hike interest rates when their main focus has been fighting against weak demand and deflation for decades?
 
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Viet

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Because you are assuming that the BoJ is really committed to propping up the Yen. $20bil is just a small change for Japan. A lower Yen will boost their export competitiveness and get them out of their deflationary spiral with greater external demand. Hiking interest rates is much more expensive way to defend the currency and it will create more problems. Their debt to GDP is >200%, how much additional interest expense will they incur for every percentage point hiked? And why hike interest rates when their main focus has been fighting against weak demand and deflation for decades?
Lower yen to boost exports? Erdogan doing that. Great success. The bottom line of the currency is zero.
If Japan really wants to fight deflation, economic downward trends, then they must open the borders, letting in immigrants. There is no other option.
 

MH.Yang

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Lower yen to boost exports? Erdogan doing that. Great success. The bottom line of the currency is zero.
If Japan really wants to fight deflation, economic downward trends, then they must open the borders, letting in immigrants. There is no other option.
Do you know which country Erdogan is imitating? He is imitating 1994-China.

In 1993, the exchange rate of CNY was 4.4. The Chinese govt cut interest rates + quantitative easing. In 1994, the exchange rate of CNY was 8.6, CNY depreciated by 195%. But China succeeded in the end.

Japan is an East Asian, you should refer to China's precedent.
 

Mista

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Lower yen to boost exports? Erdogan doing that. Great success. The bottom line of the currency is zero.

Lol what a lazy, slippery slope argument. Go compare Turkey's economic fundamentals to Japan's. You might as well say Japan is going to be the next Zimbabwe if they continue zero interest rates lmao.
 

Viet

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Do you know which country Erdogan is imitating? He is imitating 1994-China.

In 1993, the exchange rate of CNY was 4.4. The Chinese govt cut interest rates + quantitative easing. In 1994, the exchange rate of CNY was 8.6, CNY depreciated by 195%. But China succeeded in the end.

Japan is an East Asian, you should refer to China's precedent.
Ok good hint I didn’t know that. However when looking at it that’s not the same result. One, the yuan is relatively stable while lira lost 94 percent to the dollar. Two, China inflation rate remains modest compared to Turkey 80 percent. Three, China broadening manufacturing base over the period while Turkey mostly focusing on property and tourism sectors.
 

MH.Yang

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Ok good hint I didn’t know that. However when looking at it that’s not the same result. One, the yuan is relatively stable while lira lost 94 percent to the dollar. Two, China inflation rate remains modest compared to Turkey 80 percent. Three, China broadening manufacturing base over the period while Turkey mostly focusing on property and tourism sectors.
In 1994, China's CPI was 124%. Now the CPI of Turkey is 83%. The situation in 1994-China was even worse.

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REhorror

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So it seems from the analysis here, Japan's economic status is actually still pretty good and the yen lowering is a part of their strategy?

Hmmm.
 

MH.Yang

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So it seems from the analysis here, Japan's economic status is actually still pretty good and the yen lowering is a part of their strategy?

Hmmm.
It depends on the final result. If Fumio Kishida wins, he is Jiang Zemin. If he loses, he is Erdogan.
 

REhorror

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It depends on the final result. If Fumio Kishida wins, he is Jiang Zemin. If he loses, he is Erdogan.
Erdogan is like one of the most well-loved and successful Turkist leader, so I'm not sure man.
Despite all the doom about the economy, he manages now to export Turkist drones all over the globe.

In fact, all the doom gloating about the Turkist economy despite the fact it still functions makes me very weary about any news about "economic collapse".
 

MH.Yang

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Erdogan is like one of the most well-loved and successful Turkist leader, so I'm not sure man.
Despite all the doom about the economy, he manages now to export Turkist drones all over the globe.

In fact, all the doom gloating about the Turkist economy despite the fact it still functions makes me very weary about any news about "economic collapse".
Japan's success or failure depends on whether they can find a way to survive for the Japanese automobile industry.

If the price of gasoline cars in Japan can fall like the exchange rate of the yen, it will still be able to compete with new energy cars.
 

REhorror

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Japan's success or failure depends on whether they can find a way to survive for the Japanese automobile industry.

If the price of gasoline cars in Japan can fall like the exchange rate of the yen, it will still be able to compete with new energy cars.
I think Honda and Toyota have plans to have the chinese make their EVs while slowly retooling their factories to be EV-factory.
While Nissan and Mitsubishi will push hard with EVs to compete with Toyota and Honda.

We will see.
 
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Mista

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So it seems from the analysis here, Japan's economic status is actually still pretty good and the yen lowering is a part of their strategy?

Hmmm.

Economic status, well, they are still the third largest economy in the world after the US and China.

The devaluation of the Yen is not a deliberate strategy, in fact they are defending the Yen through forex intervention. It's just that defending the currency is the least of their economic worries. They are more concerned about boosting consumer demand and getting out of the deflationary spiral which have plagued them for decades.


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Household consumption makes up >50% of Japan's GDP. From demand-side economics, boosting exports and tourism is good to have but not a game-changer to their economy. If consumer spending tanks, the economy will like also tank and a boost to exports can hardly compensate,
 

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