Gavin Wright

The Yen Needs to Depreciate

Of course Japan being a creditor nation with traditionally low interest rates didn't help its currency in the past, as every house wife participated in exporting its savings to the USA by selling the Yen and buying dollar assets - we have a paradigm shift about to happen here as the consensus on the USA will shift to it being seen as not much better than a banana republic; our equities rallies will continue to fizzle out, march to 500 or lower on S&P will continue, economic news will continue to be horrible and then the Fed/Treasury will start more aggressively to buy long dated Treasuries and drive our rates to zero and flood our economy with dollars in an attempt to inflate (and get folks to spend and to rise incomes relative to debt loads) and this will make the dollar sink relative to gold - but also the Japanese housewife will do the risk adverse thing as BOJ will not be able to cause inflation there and rates will remain low in Japan but scale of US money printing will overall lead to massive devaluation vis-a-vis other economies of lower inflation and deficits - including Japan. The devaluation will lead to a US stock market rallyeventually but in Yen terms that market will go nowhere - as Japanese exit the carry trade and move their money home as they see the dollar buy less gold, less crude, and pay less interest.

Japan has a failed export economy which it needs to cede to the rest of Asia - its imports will be cheaper under this scenario and it should still be able to export but selling to the US will be tough - I don't know - who will print more currency BOJ to keep its currency weak relative to the dollar or Fed to get out of a potential depression? I think relatively speaking the Fed will and I believe the BOJ will give up once the magnitude of the increase in monetary supply necessary to save us becomes clear to the world ...

I agree with you that when economies recover that yen gets sold & carry trade resumes BUT I believe we are still only in the second inning here of a very long game - and that USA GDP drop will be considerably worse than consensus and do not, do not, underestimate the political system's talent for screwing this up. It will continue to do too little too late. The fiscal stimulus is a joke and will be no where near big enough to make up for difference in the drop in demand. The ride will be getting much rougher.

I am unsure about the timing of a Yen appreciation; BOJ could screw up this trade for awhile; still the dollar is going to have to be printed massively and not the Yen. TOf course Japan being a creditor nation with traditionally low interest rates didn't help its currency in the past, as every house wife participated in exporting its savings to the USA by selling the Yen and buying dollar assets - we have a paradigm shift about to happen here as the consensus on the USA will shift to it being seen as not much better than a banana republic; our equities rallies will continue to fizzle out, march to 500 or lower on S&P will continue, economic news will continue to be horrible and then the Fed/Treasury will start more aggressively to buy long dated Treasuries and drive our rates to zero and flood our economy with dollars in an attempt to inflate (and get folks to spend and to rise incomes relative to debt loads) and this will make the dollar sink relative to gold - but also the Japanese housewife will do the risk adverse thing as BOJ will not be able to cause inflation there and rates will remain low in Japan but scale of US money printing will overall lead to massive devaluation vis-a-vis other economies of lower inflation and deficits - including Japan. The devaluation will lead to a US stock market rallyeventually but in Yen terms that market will go nowhere - as Japanese exit the carry trade and move their money home as they see the dollar buy less gold, less crude, and pay less interest.

Japan has a failed export economy which it needs to cede to the rest of Asia - its imports will be cheaper under this scenario and it should still be able to export but selling to the US will be tough - I don't know - who will print more currency BOJ to keep its currency weak relative to the dollar or Fed to get out of a potential depression? I think relatively speaking the Fed will and I believe the BOJ will give up once the magnitude of the increase in monetary supply necessary to save us becomes clear to the world ...

I agree with you that when economies recover that yen gets sold & carry trade resumes BUT I believe we are still only in the second inning here of a very long game - and that USA GDP drop will be considerably worse than consensus and do not, do not, underestimate the political system's talent for screwing this up. It will continue to do too little too late. The fiscal stimulus is a joke and will be no where near big enough to make up for difference in the drop in demand. The ride will be getting much rougher.

I am unsure about the timing of a Yen appreciation; BOJ could screw up this trade for awhile; still the dollar is going to have to be printed massively and not the Yen. Everyone sOf course Japan being a creditor nation with traditionally low interest rates didn't help its currency in the past, as every house wife participated in exporting its savings to the USA by selling the Yen and buying dollar assets - we have a paradigm shift about to happen here as the consensus on the USA will shift to it being seen as not much better than a banana republic; our equities rallies will continue to fizzle out, march to 500 or lower on S&P will continue, economic news will continue to be horrible and then the Fed/Treasury will start more aggressively to buy long dated Treasuries and drive our rates to zero and flood our economy with dollars in an attempt to inflate (and get folks to spend and to rise incomes relative to debt loads) and this will make the dollar sink relative to gold - but also the Japanese housewife will do the risk adverse thing as BOJ will not be able to cause inflation there and rates will remain low in Japan but scale of US money printing will overall lead to massive devaluation vis-a-vis other economies of lower inflation and deficits - including Japan. The devaluation will lead to a US stock market rallyeventually but in Yen terms that market will go nowhere - as Japanese exit the carry trade and move their money home as they see the dollar buy less gold, less crude, and pay less interest.

Japan has a failed export economy which it needs to cede to the rest of Asia - its imports will be cheaper under this scenario and it should still be able to export but selling to the US will be tough - I don't know - who will print more currency BOJ to keep its currency weak relative to the dollar or Fed to get out of a potential depression? I think relatively speaking the Fed will and I believe the BOJ will give up once the magnitude of the increase in monetary supply necessary to save us becomes clear to the world ...

I agree with you that when economies recover that yen gets sold & carry trade resumes BUT I believe we are still only in the second inning here of a very long game - and that USA GDP drop will be considerably worse than consensus and do not, do not, underestimate the political system's talent for screwing this up. It will continue to do too little too late. The fiscal stimulus is a joke and will be no where near big enough to make up for difference in the drop in demand. The ride will be getting much rougher.

I am unsure about the timing of a Yen appreciation; BOJ could screw up this trade for awhile; still the dollar is going to have to be printed massively and not the Yen. TOf course Japan being a creditor nation with traditionally low interest rates didn't help its currency in the past, as every house wife participated in exporting its savings to the USA by selling the Yen and buying dollar assets - we have a paradigm shift about to happen here as the consensus on the USA will shift to it being seen as not much better than a banana republic; our equities rallies will continue to fizzle out, march to 500 or lower on S&P will continue, economic news will continue to be horrible and then the Fed/Treasury will start more aggressively to buy long dated Treasuries and drive our rates to zero and flood our economy with dollars in an attempt to inflate (and get folks to spend and to rise incomes relative to debt loads) and this will make the dollar sink relative to gold - but also the Japanese housewife will do the risk adverse thing as BOJ will not be able to cause inflation there and rates will remain low in Japan but scale of US money printing will overall lead to massive devaluation vis-a-vis other economies of lower inflation and deficits - including Japan. The devaluation will lead to a US stock market rallyeventually but in Yen terms that market will go nowhere - as Japanese exit the carry trade and move their money home as they see the dollar buy less gold, less crude, and pay less interest.

Japan has a failed export economy which it needs to cede to the rest of Asia - its imports will be cheaper under this scenario and it should still be able to export but selling to the US will be tough - I don't know - who will print more currency BOJ to keep its currency weak relative to the dollar or Fed to get out of a potential depression? I think relatively speaking the Fed will and I believe the BOJ will give up once the magnitude of the increase in monetary supply necessary to save us becomes clear to the world ...

I agree with you that when economies recover that yen gets sold & carry trade resumes BUT I believe we are still only in the second inning here of a very long game - and that USA GDP drop will be considerably worse than consensus and do not, do not, underestimate the political system's talent for screwing this up. It will continue to do too little too late. The fiscal stimulus is a joke and will be no where near big enough to make up for difference in the drop in demand. The ride will be getting much rougher.

I am unsure about the timing of a Yen appreciation; BOJ could screw up this trade for awhile; still the dollar is going to have to be printed massively and not the Yen. The way to hedge dollar risk is by owning the yen, not gold; further, there is much more risk in owning the dollar than the Yen as the world comes to see the USA as almost a banana republic and as Obama and the Fed realize this is a 1930 moment - inflate or die. The paradigm shifts.

Be Prepared for a Weaker Yen

I totally disagree. Risk is in not being in Yen. Japanese economy may rot but ours is going to rot more ultimately because we are about to print money. Japan is a net creditor nation, we are a net debtor, and the Fed/administration is about to devalue our debt/our currency by printing a whole lot of money. Almost all currencies should depreciate against the Yen - as the USA restructures its debt to lower its debt/income ratio in the economies various sectors - a process that will take time - Obama will also try to raise incomes to pay those debts by printing more money - this will lead to radical devaluation vis-a-vis the Yen, I mean you want to be in currencies that don't have dollar denominated debt, Japanese economy will be horrible but has surpluses and can pull in its assets from overseas which will be supportive to its currency because they will be playing defense - other currencies will depreciate relative to the Yen and probably gold. I'm a little fearful of gold it could easily double here from a us$ perspective but its "real" demand as jewelry etc is at $500 - so this huge speculative stock buildup reminds me of crude oil at $90/barrel then $100 etc to $150/barrel before the crash. Better to be long the Yen.