The only problem with Strafor is that they REFUSE TO FACTOR IN Y2K issues in their analysis. I've had several email exchanges with one of their analysts and he claimed that they didn't have the technical expertise with which to incorporate Y2K in their reports.
Well, I may only have a BA in Internation Affairs, but even I'm smart enough to know that the following is important enough to have an economic impact should the attitude get out of hand.
y2ktoday.com.
Yen rise seen fuelled by Y2K-related risk aversion 8/17/99
Author: Swaha Pattanaik
LONDON -- Mounting risk aversion among global investors, not least because of jitters before the millennium, could create a headache for Japan which is already confronted with a recovery-threatening rally in the yen.
The premium that investors are demanding to hold anything but top-rated government debt has risen above levels hit after last year's Russian default while concern about the havoc Y2K could wreak on the world's markets is boosting demand for cash.
Although investors around the world are taking money home or looking for safer places to park it, Japanese capital repatriation is seen dominating and unleashing a fresh bout of yen strength given Japan is the world's largest creditor nation.
A wash of money returning home to Japan would therefore drive the yen above all-time highs it has already hit against the single currency on Tuesday and beyond the six-month peaks it hit against the dollar earlier this month, analysts said. "Bond markets are pricing in more problems than the equity market, and the risk is that the equity market, which is semi-professional because of the large amount of public participation, is behind the curve," said Shahab Jalinoos, senior currency analyst at Commerzbank Asset Management.
"If there is a major correction in equity markets, the dollar would suffer against the yen given the U.S.'s role as a major importer of capital while the yen will benefit as a capital exporter, and this will be independent of what is happening in Japan."
"People are also expecting to see the long end suffer and cash outperform because of millennium fears."
Japan's current account surplus totalled nearly $55 billion in the first half of 1999. As long as this money flows abroad via the capital account the yen's tendency to appreciate against the currencies of Japan's trading partners is kept in check.
As soon as Japanese investors become less inclined to take their money abroad, the yen begins to rise.
This tendency becomes even more pronounced when money starts flowing home, or investors who have used cheap yen rates to fund leveraged bets start unwinding such bets, called carry trades.
"Many indicators of risk aversion have been going up recently, not just in emerging markets but also in the U.S, and in this environment, the currencies which higher current account balances are the ones most likely to benefit,'' said Alfonso Prat-Gay, global head of foreign exchange strategy at JP Morgan in London.
"Risk aversion is also associated with unwinding of carry trades and repaying loans in funding currencies and the yen is the funding currency of the world and should benefit."
Prat-Gay said he is expecting the yen to appreciate to 113 per dollar within the next month.
While currencies like the euro and the Swiss franc are also backed by current account surpluses, they are less likely to advance against the dollar on this basis for the time being, analysts said.
"This argument does not hold water with the euro zone given its current account surplus with the U.S. is much smaller than the Japan's and smaller than the capital flows," said Tony Norfield, global head of foreign exchange at ABN Amro in London.
Meanwhile, there are already signs that investors are beginning to batten down the hatches in preparation for possible computer glitches at the end of the year.
"Some people are already getting out of stocks and bonds and moving into cash as they don't want to revalue and deal with volatility before Y2K," said a dealer at a U.S. bank in London.
"Rather than revaluing, they are taking profits, sticking their money into cash, and sitting tight." |
