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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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Kyle Bass has got to have a spring in his step this week.
If he weren't also short the JGBs he might have......
Also, I think Bruce overstates the case against Japan here. Strategic devaluations have been part of the Asian policy toolkit for years (see Korea, 1997-1998 for example). HK pegs, China basically pegs to USD within bands etc. etc. Currency management is part of Asian macro policy and very few of these countries have free floating, unmanipulated currency policies.
While I doubt Bruce favors this massive, pan-Asian macro policy/currency manipulation, it seems unfair to target Japan without calling out the others.
Of course, the more interesting issue is: Will it succeed?
Maybe I'm dense but I fail to see how a consumer economy improves when items cost 25% more! Eventually (or soon) demand drops, workers suffer and things falter. Perhaps the problem lies in the nature of modern exports - the idea that a nation prospers only by selling products abroad. This may make sense for nations like Japan (relatively small, poor land, devoid of resources) but in the past nations sold only EXCESS products to others.
Egads, whining about Japan not caring where the chips fall suggests you think other countries do?
Quaint, maybe even charmingly naive in another era. A game theory based on a global win would be wonderful and perhaps lead to the greatest net gains for everyone. But alas, countries don't think that way except in the case in which they control other countries and thus seek to protect their dominion.
When you devalue the currency quickly, that's an act of war. But when you do it slowly over time, it's not? Don't you read George Washington's posts about the levels of radioactivity in Tokyo? I hope your daughter enjoys her honeymoon, but she ought to wear lead underpants to protect your future grandchildren in her ovaries.
Not a big fan of Abenomics at all. That said, what were you saying about Japan over the past 4 years as both the US and EU were debasing their currencies at the expense of the Yen? Do you think Bernanke or Obama cares "where the chips fall" outside the US borders?
Prior to the recession and all of the subsequent Fed intervention, the Yen was at 120. From a global perspective, overshooting to 120 will only bring it back to pre-recession levels. From the Japanese perspective, they aren't exporting their deflation, they are simply undoing the effects of the Fed and ECB.
Now, if you want to discuss the damage that Abenomics will cause to Japan's domestic economy or the mess it will cause in Asia, we can agree. But no tears will be shed because of what it will do to the US or EU.
Joe Weisenthal = Douchebag
The US has ben debasing its currency and exporting inflation for 100-Yrs.
Would such actions also be considered an Act of War?
Only if you include every other nation on Earth who has been doing the same thing. I think of Argentina which has bankrupted itself over and over and started chain reactions in South America again and again. They should be arrested first. Or maybe Britain with its huge borrowing or Russia for importing an ideology that inevitably led to poverty and destruction. I see lots of candidates besides the mean, ole USA.
I am very familiar with both places. They are very very very different, putting aside the currency situation and I would advise not to allow the latter to drive the choice for a honeymoon venue.
As for a knowledgeable view on the regional economic impact of what Japan is doing, Joe what's his name is the very last pundit I would look to.
Especially the level of "background" radiation is surely very very very different ...
It goes without saying.
In any event, honeymoon country in Japan is to the south. No Japanese person would ever honeymoon in Tokyo, for goor reasons. They all go to Thailand and Hawaii.
She could always honeymoon near Chernobyl, Sellafield in the UK or Hanford, Washington.
http://en.wikipedia.org/wiki/Sellafield
Those places could give her a girlish glow. Bruce is sounding like a half wit if he does not tell his daughter to avoid Japan.
Actually a significant number head here. I wandered into Chena and was struck by the dual language signs and menu. This place is a must for Japanese honeymooners.
That looks like a terrific honeymoon idea. Do they have broadband?
Can you visualize a bernanke bukkake?
WB7 if u please?
I have a 30 year old married daughter, and if she told me she was going anywhere NEAR Japan I would tell her that I would break both her legs if necessary to ensure that she did not go. Wow Dad! I just got a great discount on severe radiation exposure! Yeah.....yay. I love the smell of genetic damage in the morning!!!
That seems pretty stupid. She shouldn't visit Fukushima, but the whole of Japan is not dangerous.
Thanks for the advice on Japan!
(Goes to Expedia to find a cheap airline ticket to Japan for the ex-wife).
Someone is a f**king retard to let any loved one go to Japan. I had a friend who's daughter wanted to go Japan. I told him he would be a big ****ing dummy if he let her go to Japan. Stay away.
This is exactly what I thought when I was reading this. Both Bruce and his daughter are fucking crazy.
Fits well in to the normalcy bias the other article was talking about.
you're both fucking retarded...
not at all - they are both "right" - i have a 30 year old daughter and would say the same thing - no way! - what would someone eat? Fish - from where ? the large fish are being contaminated by the food chain
if she gets pregnant then what? besides Thailand / Cambodia/ Laos / Vietnam is way better experience and much more to do
+1000. These guys need to go outside and see if there are any "contrails" in sight, so they have time to duct tape their window sills.
That's how we won WW2, you know. I saw the black and white footage of all the contrails we sprayed out of those b17's. Sprayed them all the way across the channel to Schwienfurt and back.
I sometimes can't tell if posters are trolling or are just idiots. You think the contrails from the wings of planes are some kind of spray that does something devious? Or are you busting on the posters who wouldn't let loved ones visit Japan?
Aero, I'm making fun of the posters (and contributors) who think jet aircraft compression cycles crystalizing water vapor at 40k feet is the spraying of mind control chemicals.
No shit! I know it's fucking hard to wrap your mind around, but these guys actually believe that.
So we have some factors in play here:
Volume of the atmosphere.
Payload.
Control of target saturation (this is why crop dusters fly at tassle level)
But there's no reasoning with these guys. So I say that their delusion is a product of being mathematically challenged. The hygiene and social skills challenges I allude to are just (damn fine) best guesses.
But every time I do it, you can bet they'll all pedal their Charles Johnson Crazier than a Shithouse Rat asses into the discussion and the Cult will down vote the piss out of the post.
Let's watch and see...
now I'll really Zap em with my siren man.
Pressure and Velocity are inverse.
Temprature and Pressure are converse.
So when atmospheric water vapor enters a turbofan (or into the bernoulli effect of a propeller, or wing, if the speed is high enough) it first is compressed, then released from that compression at a high velocity. The temprature subsequently drops rapidly and causes the vapor to condense into crystals.
which is why in WW2 the b17 an b29 formations at high altitude left contrails.
Of water vapor
Not fucking mind control drugs.
Not then, not today.
why at altitude? Density is less.
now all you contrail theory believing, fucking mouthbreathing herd following candiates for gene pool chlorination can plant a big kiss on my hairy ass.
xoxo
The Mayor of the Lunatic Fringe.
Yes, yes, the nuke pumper brigade is here. Surely the massive radiation perpetually dumping from Fukushima is good for people yes? I find your deflection to contrails somewhat amusing because the war was won (in Japan anyway) with the use of benign nuclear energy.
Spread your disinfo somewhere else fuckwad.
Reedy Kilowatt says Mr. Atom is our friend.
Nobody said nuclear waste (or power) was "good". Their comments concerned the trend of some posters to pick up on whatever the latest web faze is (UFO, contrails, concentration camps in CA, anything that GW writes for ZH) and immediately adapt that position hook, line and sinker. It's about herd psychology - where any different ideas are dismissed as "traitorous". It's about the psychology of tribe politics - casting opponents as evil while shielding supporters no matter what they do or how nutty their positions are.
I hope we can shut down all nuclear power plants but I do not think that one accident will radiate that world, much less Japan - even if GW writes it. (Didn't we and the Russians test hundreds of nukes in the ocean?)
There is a piece on normalcy bias on ZH today. You might want to check it out.
Take a look at Ocean22's image and get back to me.
An image of a tsunami on a weather map? I fail to see the relevance to a discussion.
.
Those are the same three words that came to mind when I first saw news of Japan's most recent Q.E....surely the same must be said of US.
I'm not seeing it. Japan doesn't have powerhouse exporters anymore, and its about to become the "Land of the living Dead". They need a graceful and orderly path to becoming poorer, period.
Much poorer, sadly, but nonetheless true. Japan can, and should, devalue in ways that a Cypriot and Greek finance minster can only dream of. They are going to need lots of Filipino nurses, and as inexpensive as possible.
Devaluation has its limits. HIgher energy prices will murder the domestic economy. Austrians would say that you play with price signals at your peril. But its got to happen.
Very true, the point that really rings out is "graceful and orderly."
Only the future will tell us how this BOJ policy (which is quite extreme) will pan out. I don't see any reason to not borrow as much yen as you can inorder to seek out higher yielding alternatives. You have a central bank projecting lower rates so why not take the spread against a basket of developing market economies with better debt to GDP characteristics.
And some iodine pills...
a little nuke waste in the ocean a few to many yen here and there so what, maybe the wacko in nk will send them a little gift
JFC Bruce - I guess she doesn't read Geo's blog? Have her take some Ki at least. . .
Congrats, btw.
[IMG]http://i1200.photobucket.com/albums/bb334/joelhough/28CEA7F9-FB5E-409E-B...[/IMG]
How does this differ from the US which also undertakes massive monetary interventions with nary a concern about the consequences outside its borders?
Any nation that thinks of others before itself deserves to go down. Rational folks would have realized that making products 25% more expensive is not the way to jumpstart an economy based on consumer spending. BUT, no country should take actions that place other nations above its own. In a way, it's silly to even suggest that a nation should do this. Japan is hurting itself j ore than it hurts others.
To put it another way, Switzerland is hurting travelers and shopper by not racing to devalue their franc, engage in massive borrowing and implementing a vast central state. Outsiders can't afford to buy things or vacation there. Yet few would call their actions "unfair" - simply common sense.
Actually, if the franc is strong, it allows that to import raw materials cheaper, so they can maintain competitive prices- assuming they produce anything besides coo-coo clocks.
The strength of a country's currency has no effect on the raw materials cost component of stuff they export, because the strength/weakness of the currency balances when the imported materials are shipped back out. What it effects is the labour component.
So I guess you don't consider money laundering, banking on steroids, state corruption and a place for all sorts of financial swindlers and WWII murderers' money heaven as producing anything? I agree!
I guess children that glow in the dark are in fashion these days...
As are children that write stupid blog posts for Business Insider.
Have you NOT been reading ZH?
Hoo-rah for the speculators!
You see, Bruce, it's not a zero sum game.