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Japan at War
My daughter called last night, she's made her reservations for a honeymoon in Japan. Six months ago she was leaning on going to Thailand, but the cost of a trip to Japan has fallen so sharply, that she was able to afford the cost of a visit to beautiful Tokyo. She's delighted.
The dollar cost of a hotel in Tokyo has fallen by a very significant 25% in just a half-year. I'm sure that many other tourist around the world will now consider Japan as a destination for a vacation. The devaluation of the Yen is working!
While I'm happy for my daughter (and those hoteliers in Tokyo) I'm frustrated by the enthusiasm that financial markets have demonstrated by the major devaluation of the Yen. To me, this is a zero sum game. The gains in Japan, are just losses everywhere else.
I see the big losers as Korea, China and the rest of SE Asia. America is going to get hit fairly hard as both tourism and trade react to the cheaper currency. Europe is so screwed up today the consequences of the Yen devaluation will be masked, but the German car exporters will get beat to pieces as the exchange rate adjustment flows through on car prices. Places like Brazil will feel the consequences as well, liquidity out of Japan will leak into local capital markets, it will be the source of unwanted inflation.
A lot of my readers resent the fact that big money gets bigger because it is big. The Yen devaluation is a classic example. It's my understanding that some folks have gotten spectacularly rich from the plunge in the Yen. (not just those who made it to the papers) The beauty of the Yen short trade is that there was very little risk. The government telegraphed its intentions perfectly. Damn near every speculator in the world was able to profit from what has happened. The gains are measured in the 100drs of billions of dollars. Once again, the central banks have made market players rich. The vast majority of the speculative currency gains will never get taxed. The rich and powerful just got richer and more powerful
Who will pay for the speculators gains? The Japanese citizens will be forced to kick in a huge chunk. The cost of everything that is imported into Japan is now 25%++ higher than a half year ago. The US economy will surely play a price. How much of a drag to US GDP is the Yen devaluation going to cause? I think the number starts with 1/2 percent.
China is going to get thumped. I don't think China is just going to roll over and give Japan a free ride. Some retaliation is in the offing. "Things" between China and Japan have been very rocky over the past half-year; they are going to get worse. Japan has created an enemy with China, this will not end well.
In my years of watching FX, I've never seen a soft landing from a devaluation. I don't think Japan in 2013 will be any different. Japan Inc. may be happy to see the 100/dollar exchange rate, but I doubt that the Bank of Japan can achieve equilibrium at this level. The risk is that the USDJPY overshoots (they always do). There is a very real possibility that things get out of control and a move to USDJPY 120 is in the cards. I see a near zero chance that the BOJ is going to step into the currency market and do reverse intervention to contain Yen the weakness. If enough speculators believe as I do, then we are in for a hell of a ride in the coming months.
Japan is desperately seeking to export its deflation - I think they will succeed. But when the deflationary consequences hit Japan's trading partners, a global slowdown will be the result. Japan's trash is being passed around the globe. I wonder how long the rest of the world is going to stand for it. Give it six months (or less) for the damage to be felt in the USA, and then the backlash will start. That, or China does something ugly. Either way, those who are singing praise for Japan and it's effort to undermine its currency are going to be singing a different tune.
There is a perception that Japan's monetary policies are directed inward. People like Bernanke are saying that any monetary stimulus is good stimulus, nothing bad can come of it. I don't see it that way. I see Japan as a global aggressor, the country doesn't give a damn about where the chips fall outside of its borders.
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I don't think the Japanese really had much choice other than to go ahead and default now.
This is their last gasp gamble to go all in hoping for a miracle. Or maybe they'll get lucky and we'll have the end of the world before they collapse and no one will know.
Well someone better stamp on the oil speculators and get the price down to $70 a barrel in double-quick time or this is all going to get out of hand.
Now I know where Sheldon got the Idea for Fish Night Lights.
End Game Bitchez
Any country on it's deathbed will do what it has to do. Except the US they still have far too many people to rape and send to tent city.
Maybe trips to Tokyo are discounted for severe radiation levels. Last fucking place I'd want to go.
You would have to pay me mega bucks to set foot in the land of the rising radiation any time within the next 10 years.
Japan probably needs a depreciated yen in order to be able to compete with South Korean consumer electronics manufacturers and the Hyundai ship yard. Japan has not been able to build premium brands for consumer electronics. South Korean brands are now as prestigious as Japanese brands. And a Hyundai automobile is today not significantly less prestigious than a Toyota, Honda or Nissan. So Japanese consumer goods manufacturers can not prosper if South Korean manufacturers have an edge as regards price.
I think that Japanese durable consumer product manufacturers have been bad at building premium brands. That is probably to a large extent due to clueless managers. Take Mitsubishi for instance. In Sweden, Mitsubishi was on the verge of becoming a semi-premium brand in the late 1980s and early 1990s because of stylish products, a brand name which could be associated with some kind of pedigree, a very clever advertising campaign which associated the Mitsubishi brand with Japanese fine arts and the Japanese cultural heritage. The brand name Mitsubishi did also sound very Japanese to Swedes. It was easy for Swedes to associate the brand with the ancient Japanese culture, Japanese aristocracy etc. The Mitsubishi brand had a classy sound to the name to many Swedes. The brand was also associated with high-tech due to frequent mobile phone advertisements (remember that a mobile phone was an expensive prestige product 20-25 years ago).
But then, late in 1992, Mitsubishi ran into trouble in Sweden when Sweden dropped the fixed exchange rate. Mitsubishi automobiles all of a sudden became a lot more expensive. They could have solved this problem partially by mounting bigger engines (that were available in Japan but not in Sweden), which were about as expensive to produce, in cars they shipped to Sweden. Thereby, a higher price would also have been accompanied by more value for money. Since Mitsubishi was a brand on its way up as regards prestige in Sweden they could probably have captured market shares for more expensive cars, provided that they had offered sufficient value for money. Therefore, the product-mix in Sweden would not have suffered so much if the cost price of the products were considered. It would not have taken much creativity to figure out a solution like that. But instead they did nothing but offering more expensive cars that offered the consumers considerably less value for money. Therefore, they lost lots of market shares.
I don´t know how much of the failure of Mitsubishi in Sweden in the early/mid 1990s can be attributed to the leadership of, Jan Reander, the principal owner and CEO of the Swedish general agent, and the Japanese executives that were working with him in Sweden. If you read Reander´s book “Akta dig för japaner!” (“Stay away from Japs”) there is no trace of any idea similar to what have I outlined above. So I reckon that Reander himself did not come up with any great ideas himself. My impression is that he thought that he could wait until the Swedish krona appreciated again while the Japanese executives freaked out when they realized that the sales figures would not reach their targets (therefore Reander told them that “now I understand why it took two bombs instead of just one”, which the Japanese executives obviously were not happy about).
In any case it seems as if Japanese companies generally have difficulties in competing with other things than price compared to almost identical products from other manufacturers. So if they can´t produce things more efficiently, which they are very good at, than the competitors they just got to depreciate the yen.
So your daughter is Orly?
The Japanese are US puppets providing a rationale for further Fed easing. The Fed can purport to "Have" to respond in kind to prevent damage from Japan's actions.
I feel bad for the Japanese citizens but then again, Japan killed around 20 million Chinese during the second Sino Japanese war and Karma is a bitch.
The Japanese must be deperate. Are they taking action which is counter to the banking interests or in-line with them? The seem to be doing an Obama to destroy their currency and country through spending massive amounts of money they do not have reserved in value.
the power isn't really in the money, but in drugs.
http://covert.nl.ae/
I guess the UK gets to eat the Qatar LNG ration again.
No need to do anything risky.
http://www.youtube.com/watch?v=OP5uCXDcpd0
Just to interrupt the anti-Japanese ranting, a little objective truth:
http://fxtop.com/en/historical-exchange-rates.php?A=1&C1=USD&C2=JPY&MA=1...!
JPY has almost made it back to 2009 valuations after strengthening for 10 years.
Japan is at war but didn't start it!
who cares? is the masters delayed? is obama going to put off his vacations?who won america has some talent?
its over , so enjoy obamas vacations and his banker buds looting , we didnt worry about corzine did we that would be racist! enjoy your choices americans , see you all at the food line.
Have you, Bruce, considered that hotel price drops may have been caused by the factors other than yen devaluation?
I'd want to visit Tokyo now no more than I'd want to visit Kiev in the summer of 1986. Actually, a lot less so. Even though the distance between Fukushima and Tokyo is 3x the distance between Kiev and Chernobyl power plant, Fukushima reactors continues to spew out a lot more radiation than Chernobyl reactor #4 ever did.
And I'd never let both children and peole of child-bearing age to go near that place.
If the daughter of Forex Trader Daddy has to give a shit about the exchange rate for her honeymoon, maybe shorting the Yen was not as bleeding obvious as it sounds with hindsight?
Japan is the grandmother of all QEs. When the page of this century turned over, there will be no Japan in next page.
There may be some others missing as well.
Another weak-ass fear piece from the paper-pusher himself. Here let me fix something for you Bruce.
"I see the U.S. as a global aggressor, the country doesn't give a damn about where the chips fall outside of its borders." - FIXED.
Are the two mutually exclusive? I kind of read this article as if to say the US as monetary aggressor was a given. Then, we add Japan to the mix.
Yep and Japan who was forced into perpetual slavery (no standing army allowed) after losing WWII is being forced to do the dirty work.
Imperialism and using proxies to wage warfare without getting your own hands dirty. Same as it ever was.
So did Bernanke declare war with the trillions of QEasing? Did Europe do it? I think Japan is just retaliating. "We didn't start the fire."
@Krasting sez:
That means the cost of everything EXPORTED FROM Japan is now 25%++ higher than a half-year ago.
Japan imports all fuel including coal, all iron ore, all steel and steel products, all other metals, all other raw materials including timber, softs, chemical feedstocks, etc. Whatever 'trade advantage' the Japanese have is abstract. They can never escape their rising import costs which must be passed onto their customers in and out of Japan.
What Japan does not import is labor whose wages are cut ... 25%++.
The fuel supply issue sits badly with the Japanese. It is hard to see how this depreciation lasts as a 25%++ fuel price increase over very high current prices is a deflationary dagger to the heart of Japanese consumer economy. When the Japanese stop buying gas that is going to outweigh the puny efforts of the Bank of Japan and feckless Abe.
Okay, let's say for the sake of argument that the depreciation 'works': Saudia sez, "sorry, no more yen, dollars only, please' (or they demand that Japanese customers pay a premium over current f/x prices). No more yen acceptance leads to Japan's collapse, the premium leads to a yen arbitrage death spiral w/ 2 kinds of yen played against each other; the petroleum yen and the 'other' kind.
Okay, the depreciation 'works' or appears to: China dumps its yen-denominated holdings that are now worth -25%++ less than a few months ago. This is why the JGB market is having a fit right now, the reasonable fear of a China dump. With a large yen holders' run, the outcome is higher interest rates everywhere, including Japan. Japgov cannot finance itself @ higher rates; there are problems in the US and EU. Countries facing higher rates won't buy Japanese cars, they won't be able to afford them!
This is more 'conservation by other means': Japan commits hara kiri not a serious strategy.
...The cost of everything that is imported into Japan is now 25%++ higher than a half year ago.
That means the cost of everything EXPORTED FROM Japan is now 25%++ higher than a half-year ago.
LULZ! Their exports are denominated in yen also, are they not? So the 'rise' in the cost of the imported raw materials that get turned into exports is cancelled out. What doesn't get cancelled is the costs for people consuming in Japan on a now 25% depreciated wage. THAT is how devaluation 'works' - it proportionately wipes out the amount the labour force are earning, making exports cheaper in relation to countries whose currencies haven't been devalued.
Are you just taking the piss?
Japan just devalued their economy to reflect the new [post Fukashima] reality. In American Central Banker terms that's antithetical to the policy manipulations designed to overshoot our own deflationary trend by reflating the economy. When the US economy took a hit we did extend and pretend.
When the market went risk ON, the Fed LOWERED interest rates, while the correct thing to do was to raise rates to reflect that risk. US policy is aggressive, and unwarranted aggression at that. We are the Econo-Fascist gorilla in the global cabal of bankers, a handy role reversal of sorts [post WW2]
"When the market went risk ON, the Fed LOWERED interest rates"- Correct, now they are doomed as even the hint of raising rates will force a hard default on all treasury/U.S. obligations. They have chosen to destroy the dollar instead, much like Weimar destroyed it's currency (trust). The outcome will be no different this time around either. They had a chance to presecute fraud, put the moral hazard back in the bottle, and restore trust in 2001, then again in 2008. Instead, the "elite" choose to bail themselves out and everyone else who was benefitting from fraud/theft. It will continue until there no capital left to steal (that include human captial, and explains why it will end as it did before). hedge accordingly.
Vote with your feet! and change your passport!
You make a good point that others may not have picked up on. How much of what Japan is doing now is based on Fukashima? Maybe Abe knows Japan is ****ed. I have never seen a country destroy itself or commit suicide like this except O-Muslim's Amerika.
Fdie,
They have had lots of practice.
this is a country that has complete national hara kiri before.
Banzai!
The gains in Japan, are just losses everywhere else.
Until everywhere else does the same thing.
Then the losses will bourne by everyone foolish enough to have saved money or who relies on income that doesn't keep pace with devaluation.
I wish I understood FOREX enough to dable in it, I think I missed the boat. I clearly have no affinity to this trade no matter how much I read on the subject.
IIRC, Bruce you were a FOREX guy, are you back in the game?
I used Yen futures e-minis. A truly beautiful trade that I am still in. There's more to come, not to late to get short!
Obviously don't know your daughter Bruce but as someone who lived and traveled thru Asia for years, Cambodia or Thailand is a much better choice. And no risk of getting her "glow on"
I must say ZH has been a bit (coin!?) hard on the Japanese lately.
How much was a room there, i'll bet a person could get a very cheap seat on a plane destined there.
In addition, there is a guy named Ted selling 4-D copiers, at huge discount prices!
Bust out that frick'en toner.
Avoid thy pad spew
rosta
http://docs.stb.dot.gov/?sGet&Dl9dTH1WXw1zAAwLS1RcW2ZXEnEBfQQJXQACeR8Faw...
bruce this is your worst post ever. blaming japan for all the evils in the world is childish. or maybe you were long the yen
He'll blame anyone other than the banks, who he's a shill for. Hell, he even blamed the US Navy in one post.
Bruce, tell your daughter to read enenews.com before she goes to Japan.
Don't eat the sushi!
Don't breathe the air.
I read the foremerly safe Alaska salmon may now be contaminated by the Fuki radiation....how sad.
Definitely war.
Slave labor in China was also a form of warfare as well which accumulated 3.5tn in forex reserves.
Not to mention good ol Mr. Bernanke and his coming 4tn balance sheet.
120, why not. Japan in the 1980s, 250 ...
One thing though : why on earth did the YEN strengthen to the point that it did? The debt levels are insane, the demographics are horrible.
This may not be well formulated, but were the Japanese taking one for the team, by allowing for such appreciation?
Was the appreciation simply caused by repatriation of carry Yen as the world unwound?
No matter how you slice it, Yen trading in the 70s - 80s was nutty.
Are exports the only way for the Japanese to go? It would appear so. They've bet the ranch on it.
They weren't voluntarily taking one per se not when you aren't not in control of your own sovereignty. The US made sure of that after WWII. You can bet your sweet ass Japan is not allowed to do anything that might threaten our dominance in the economic/monetary realm unless it is only a single move in the chess game to maintain said dominance. They don't have a standing military (enough said).
The Japanese Central Bank is not independent of the US Federal Reserve, not when it comings to anything that will have an adverse effect on the USD.
But what about the independant central bank?
Hah!
I think I would agree that geopolitics plays a higher card than free market economics or monetarism in this case.
Two things: First, China and Japan have never been "friends", and if not officially at war have at least shunned each other for hundreds of years. I don't think Japan cares whether they make nice with China or not, even given that they are trading partners. Second, of the few world economic players you've mentioned (Japan, China, Brazil, the US, Germany) not a single one gives a damn about any one other than themselves. So on a relative basis why is it news or surprising that Japan acts totally in its national interest (screwing its own people as well as everyone else)?
If that was my daughter, I'd gladly pay the difference in price, to get her fly to Thailand. Gosh, what do you think, why prices have fallen that much? Sure, this yen-avalanche could be one reason, but I wonder, if there is no correlation to disturbingly high radiation ...
"The dollar cost of a hotel in Tokyo has fallen by a very significant 25% in just a half-year. I'm sure that many other tourist around the world will now consider Japan as a destination for a vacation. The devaluation of the Yen is working!"
LOL. "North Pacific" cod is getting dirt cheap, too. <wink>
Sounds like someone is over invested in a communist country somewhere...