Allan, I am not sure if I understood your comment. The decline in the yen, was, IMHO, a reflection of the problems in Japan not the cause. Actually a declining yen moderates somehow the Japanese problem because it allows their exports to be more competitive, the recent "reversal" threw a "monkey" wrench into their plans, as far as I know, since it is putting in jeopardy their last vibrant sector, export. Of course, you could take the position that Japan is altruistic and wants a stronger yen to open its domestic markets to its Asian neighbors, but I have difficulties swallowing this. I think what happened was an accident in which both Japanese bankers were repatriating some yen to shores their books (once the yen broke 14,000) and hedge funds over committed to the "carry trade" and hurting in other hedges had to rapidly unwind their carry trade. The two events simultaneously caused the market to choke and become illiquid. Just my opinion, of course.
From a fundamental point of view, 140 yen/dollar is no longer justified if we the US continue to be the "demand of last resort", since our trade deficit will get out of control, and that will provide a "fundamental" reason for weakness in the dollar (to counter these trade deficits).
Zeev |
