Baseball91's Weblog

November 12, 2009

The Buck

Filed under: Banking,Business,currency,euro,Minnesota,Nebraska,TARP — baseball91 @ 3:18 AM

The New World Order was here. Timothy Geithner met with Japanese Finance Minister Hirohisa Fujii this week in advance of the Asia-Pacific Economic Cooperation forum in Singapore on Thursday. On Wednesday, the dollar was trading just below 90 yen. Last month, a prominent Japanese currency strategist predicted the dollar could fall as low as 50 yen by next year. Geithner and Fujii paid lip service to the U.S.’ strong dollar policy, knowing full well that a weaker dollar is in the best interests of both countries for the time being, despite its very real and painful side effects.

Marketplace.com’s Lisa Twaronite reports quotes Bank of Tokyo-Mitsubishi UFJ strategist Naomi Fink,
“I have no doubts that Geithner defends a ‘strong dollar’ as a large economy would if it wishes to avoid flight from its assets as it increases its balance of debt. Yet like it or not, exports are actually less relevant than they were a year ago.”

“Exports comprised about 12% of the Japanese economy as of the second quarter, compared with about 16% at their peak, Fink said in an email interview. Consumption has risen to nearly 60% from about 54%, due to the reduction in exports and investment. Oil and most other commodities are traded in dollars, meaning a weaker dollar lowers Japan’s imported energy and materials costs. Naomi Fink said, ‘So perhaps the message here is that Japan should focus on domestic consumption and investment as to find a home for a greater volume of U.S. exports, thus narrowing the United States’ trade deficit?’ Fink added that in her view, it was ‘hard to see this happening,’ leaving a stronger Japanese currency as the most likely way to keep Japan from leaning on its old export crutch. ‘Japan might not wish for a weak dollar, but will probably have to bear with it, if it is to face the reality of reduced dependence on exports to the U.S.,’ said Fink. With the combination of fewer exports to the U.S. and lower oil imports and prices, the relevance of the U.S. dollar to Japanese trade has thus been reduced by default.”

“A stronger yen, while it adds to deflationary pressure here, can also help the newly Democratic Party of Japan achieve its goal of shifting the country away from a reliance on exports in favor of domestic-demand-led growth. While a weak dollar could in the long term bring down the U.S. trade deficit significantly by shifting consumption away from imports and by encouraging exports as they become cheaper on world markets, while at the same time discourage overseas investors on U.S. assets.”

The 21-member finance ministers’ meeting was the opening act for President Obama’s first state visit to Tokyo with Japanese Prime Minister Yukio Hatoyama before he heads to China. And then there was the Chinese yuan. Obama said on Monday that “currency, along with a host of other issues, will come up. I am confident that both the United States and China can arrive at a broad set of policies that encourages trade that benefits both countries, that allows ongoing economic growth.”

Economists say that Beijing artificially holds the value of the yuan down to make Chinese exports cheaper, American goods more expensive for Chinese consumers, with limited access to Chinese markets. Obama plans to raise the issue of their currency with Chinese officials in Beijing next week, a potentially disruptive topic for foreign exchange markets.

At their Pittsburgh summit in September 2009 the Group of 20 leaders aimed policies to ease the massive trade imbalance between China and the U S which has led to imbalances in the world economy by contributing to trade surpluses in China, big trade deficits in the United States, and cheap Chinese exports to the United States.

China’s relatively low-valued currency remains a focus of the financial markets. With their own high unemployment in Guandong in the important export regions from a slump in activity, there are no signs China will allow its currency to strengthen. The trade sector continues to be a drag on growth.

“We expect calls for yuan revaluation to be soundly rebuffed,” said Carl Weinberg, chief economist at High Frequency Economics. In the summer of 2008, before the September 2008 financial crisis blew up, China re-pegged its currency to the dollar. The key question is whether and when China will resume letting its currency strengthen. With the Chinese investment earned from exports put into U.S. government bonds, branding China a currency manipulator could anger a crucial U.S. creditor. There are no signs of any painful adjustments in the United States as to whether Mr. Obama will begin to cut spending or raise taxes to finance his goals.

Mr. Obama said say that the two countries share a common interest in delivering sustainable growth that will help rebalance the global economy. “They have a huge amount of U.S. dollars that they are holding, so our success is important to them. The flip side of that is that if we don’t solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship,” he said.

2 Comments »

  1. Comment by baseball91 — January 10, 2015 @ 6:03 PM | Reply

  2. Comment by baseball91 — April 26, 2015 @ 1:51 PM | Reply


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