Brahmason's Blog

At the present rate the extended feeling is that the yen can only go down . Then why does it go up ?

The parameters conditioning yen moves are :

– Japan’s policy on american and european debt is conditioned by japanese conviction that its exports to theses regions depend largely on a weak yen . The problem is that dolar and euro are currently pressed so much by their respective internal problems that the japanese move on european and american debt is eclipsed .

– Japan’s policy on its own debt is also traditionally directed to maintain the yen artificially low by placing it locally . Since the interest rates of Japan are almost negative and the japanese debt is by far the largest in the earth , foreigners are reluctant to buy it .

– Consumption in Japan remains low despite practically negative interest rates , because prices have not gone down in the same proportion as purchase power and because of high taxes and low private liquidity as well as increasing lack of confidence are too much of a handicap .

– Exports which have been for the last two decades the only way to keep economy going , are now highly resented with the depression of western economies .

– The Fukushima tsunami has also caused the need for liquidity to attend reconstruction .

Globally speaking we could conclude that from the point of view of speculation , Japan’s priority is liquidity and the market believes that the only way to generate it is to sell foreign debt because lowering taxes or issuing further japanese debt are very problematic at present .

In fact surprisingly enough the main problem with traditional economies is precisely the need of liquidity . It commenced with the trend to live beyond possibilities in those countries and has reached the climax due to the prolonged attempt to solve it with the issue of unlimited amount of debt to compensate imbalances without any realistic actions to limit spending and reset competitiveness .

So selling foreign debt can only revaluate yen further . Does it justify the present yen value ? It is difficult to asses but the impression is that besides the logics of what we are saying here , there is once again the possibility that we should be watching another bubble . That is the yen bubble –

Of course one the problems with that is that thousands of real state non japanese investors who chose to pay their houses etc on a mortgage in yens , will surely go into bankruptcy . The other is that japanese stock exchange will have to endure very delicate situations .

But probably the strongest impact will be with euro and dolar because both these currencies have lots of merits of their own to go weaker and the addition of the japanese effect is not helping and may send oil etc to the sky with the added influence of fears about Iran .

Our prediction is that all this together with the american and european debt and deficit burdens plus the general loss of purchase power of the middle class of the majority of the world population , guarantees a future of prolonged depression with a final inevitable replacement of world economic structure and operating logics .

Brahmason