Avoid Japan Due To Weak Yen, Weak Growth

Includes: EWJ, FXY
by: Enzio von Pfeil

Subscribers know that we have been consistently skeptical about Japan. Here are further skeptical thoughts.

In Bloomberg (June 2, 2007), we read that:

The dollar rose to a four-month high against the yen as accelerating U.S. job growth and stronger manufacturing added to signs the economy is gaining momentum.

The reason for the weak yen is because of weak growth: rates have to stay low in Japan for a long time. The reason: demand is just not picking up. Even investments are being cut back. In the latest quarter, the growth rate halved! Thus, overnight call rates remain at 0.5%.

Meanwhile , the US economy appears to be rebounding, the result being that Fed Funds have more room to rise. In June 2004, we predicted that they would reach around 6%, and I still believe this - shall we say by 1Q08?

How to Save Off This Idea
Avoid the Japanese market - there are plenty of more solid opportunities.

How to Make Money Off This Idea

1. Sell the yen, buy the dollar
2. finance yourself using the carry trade whereby you borrow cheap yen and invest in high-yielding assets