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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Henry Volquardsen who wrote (2509)8/15/2000 4:05:05 PM
From: Hawkmoon  Read Replies (1) of 3536
 
Eventually I see currency debasement as the only viable exit.

Absolutely agree. With the BOJ opting for tough love and quite unlikely to return to zero interest rates, the cost of borrowing will increase in Japan. And maybe this zero interest aspect of the Japanese economy may partially underlie why manufacturing there is so much more attractive than home grown industry, despite the lower wage base here. Cost of capital in the US is far higher, thus equating to a net subsidy of Japanese business that permits them to pay higher wages to their workers.

But the Japanese tax burden is more than likely to increase in order to make the interest payments on their national debt. Interest rate increases on their JGBs will increase the need for either additional revenue enhancement, or increased issuance of debt as a means of "stealing from Peter to pay Paul".

This condition could reduce the favorable export conditions that Japanese industry currently enjoys. To offset a potentially higher yen that one would think would accompany higher interest rates, monetization would need to occur in order to keep the Yen in particular range. For that reason I'm not yet sure that shorting the yen is a good idea.

What do you think Henry? Am I missing something in my logic?

Regards,

Ron
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