Baseball91's Weblog

September 16, 2010

As the Yen Rises

Filed under: China,currency,euro,European Union,Hu Jintao,Japan — baseball91 @ 3:48 AM

Money always seemed to affect the outcome of elections. Japan was in June 2009 in the throes of its worst post-World War II recession. Exports were down 40.9% from May 2008, adding to doubts about the possibility of a quick recovery from the global recession. The euro since then has plunged compared with the Japanese yen. Marketwatch has frequently reported that the dollar gained against the Euro but declined against the yen, “in a pattern that has frequently emerged when traders grow nervous about the outlook.”

On June 4, 2010, Naoto Kan, a plain-spoken finance minister was named by the governing Democratic Party prime minister of Japan. His selection came after the sudden resignation of Yukio Hatoyama over broken campaign promises. Mr. Kan, the fifth Japanese leader in four years, faced a task to ignite Japan’s faltering economy and to temper the fast rise of a strong yen. The yen has surged to a 15-year high despite weaknesses in the country’s economy based upon its export-oriented economy, combined with falling deflationary prices. In September 2010, Mr. Kan won a closely fought vote within his own governing party to stay on as prime minister.

The deflation animal has been loose in Japan for some time. As the yen keeps getting stronger, because of its $1.02 trillion in foreign reserves, the Japanese government had lost control of their currency due to the strength of the Chinese economy, with few arrows in its quiver to fight the after affects. The yen gets strong, reflecting growth in China which lacks so much transparency. In the first two weeks of July 2010, the yen had gained 4.3 percent, trading at 92.39 per dollar as of July 10. With $685.9 billion of the securities in April, Japanese investors are the biggest foreign holders of US Treasuries, after China.

Saying the dollar may no longer reign supreme in the future, Masaharu Nakagawa, the shadow finance minister in the Democratic Party of Japan envisions “in the course of the region’s forming a single economic zone,” as he told AFP one year ago, an Asia united by a single common currency. He said during he recent campaign Japan should consider shifting its $1 trillion of foreign reserves away from the dollar into International Monetary Fund bonds. Twelve months before, Nakagawa had said, “Now is the time for Japan to say what kind of world it would like to create. Not to adapt itself to the given circumstances as it has,” since the end of World War II. People must take change into account as the world seeks a new order in the post-Cold War era, with a possibility the dollar might not function as the key currency any more in the medium term.

Their currency has appreciated about 10 percent this year against the dollar. Though Prime Minister Naoto Kan said last Friday the Japanese government would be gearing up to intervene in global currency markets to curb a strengthening yen to limit further damage to Japan’s export-led economy, intervention is expected to do little, with fewer arrows in its quiver. The the upward pressure on the yen is because of increased purchases of yen-dominated bonds by China while seeking to diversify its foreign reserves away from the dollar. The gross domestic product expanded in Japan 0.4 percent in the April-June period from the previous quarter — higher than an guestimated 0.1 percent.

Unease about the economic outlook grows to unease about national security. There was a monetary arms race going on. Everywhere. One pundit noted that the state asset managers in China have replaced the PIMCO funds as well as the World Monetary Fund as a source of aid packages, without the prerequisites that used to come with the money. China’s currency reserves of $2.4 trillion is actually an Asia-wide phenomenon. And China had an internal real estate bubble all its own of which to deal.

The Cold War had been replaced with monetary arms race that involved debt instruments for the world, sources of strength, sources of weakness. As China was rescuing nations afte Septemberr 2008, trying to win friends among nations in need. With history against it, Japan was never going to make the list. The United States and Europe are happy to see their exporters gain a competitive edge against the Japanese.

The World Bank had predicted the global economy would shrink by 2.9% in 2009 in a revised outlook from a previous forecast of a 1.7% contraction. Slow growth leveling off to negative territory raises concerns of a double-dip recession. Or worse.

Unease. In Greece Alexandra Mallosi told the New York Times. “In other countries, young people are encouraged, in Greece they are held back.” The head of the International Monetary Fund, Dominique Strauss-Kahn, says that long-term unemployment could lead to massive social unrest. Victims of recession in their early twenties suffer lifetime damage and lose faith in public institutions. New research says Americans are more than $6 trillion short of what they need for retirement, on average $90,000 per potential retiree.

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  1. April 12, 2016
    In a synopsis of the business news today, in a paper submitted by senior officials at the International Monetary Fund, negative interest rates reportedly have helped boost demand and support stable prices by supplementing conventional monetary stimulus. Six of the world’s central banks have so far introduced negative rates, most notably the European Central Bank and the Bank of Japan, and around a quarter of the world economy by output is now experiencing official rates that are less than zero. This report comes ahead of the IMF’s annual spring meetings this week in Washington, D.C.

    The World Trade Organization has revised its 2016 global trade forecast downward by more than one percentage point, warning that a slowdown in China and broad market volatility continue to threaten growth. In September, the WTO estimated that global trade would rise by 3.9% this year, but it now sees a figure of 2.8%, the same rate as 2015 and the fifth year in a row it has been below 3%. “Trade is still registering positive growth, albeit at a disappointing rate,” WTO Director-General Robert Azevedo said in a statement.

    The recent G20 agreement to avoid competitive currency devaluation does not mean Japan can’t intervene in response to the one-sided moves of the yen, according to Chief Cabinet Secretary Yoshihide Suga. “What the G20 is talking about is arbitrary intervention, which is different from responding to a one-sided move.” The dollar hit a fresh 17-month low versus the yen last week on expectations that the U.S. Federal Reserve would raise interest rates very slowly. This comment was in response to the remarks of the Japanese Finance Minister late last week. After the greenback sank to a 17-month low of 107.67 yen on April 7, Japan’s Finance Minister has described the dollar’s recent falls vs. the yen as “one-sided movements.” Vowing to intervene if necessary to continue the country’s fight against deflation, Taro Aso told a press conference, “We are watching moves with a sense of tension. We will take necessary steps in accordance with circumstances.” The dollar has tumbled nearly 10% against the Japanese currency this year, with the past week accounting for roughly 3% of the move.

    The Bank of Japan, which has been trying to ward off deflation going on two decades, has now been hit with a counterproductive surge in the yen after a contested decision last month to adopt a tiny negative interest rate. In the euro zone, where the European Central Bank just delivered an unexpectedly large dose of extra stimulus, ROSS FINLEY of Thomson Reuters reports that growth has been holding up relatively well, but progress in getting the unemployment rate down has slowed. Euro zone inflation is expected to be confirmed at -0.1 percent, short of its goal of under 2 percent. In Britain, the central bank has left its key interest rate at a record low for seven years, according to Ross Finley; the Central Bank there shows no sign of moving for at least another, as inflation is even weaker, forecasted to rise by just 0.4 percent over a year ago. The euro and the yen are rallying just as central bank policymakers have delivered stimulus with the hope of spurring on export performance and importing inflation from abroad, suggesting to observers that central banks are at the end – or near – of their policy reach.

    Comment by baseball91 — April 26, 2015 @ 1:54 PM | Reply

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