Japan (including financial institutions) hold $2.5 trillion in foreign assets and stocks, the great majority in the US. At the end of this month holdings at banks and insurers will be marked to the market. At this time last year the mark was based on a 20,000 Nikkei, today it is 12,000, so the capital base of Japan's banks and insurance companies has been largely wiped out. It is now no great surprise that several if not many big names will fail. And it shouldn't take a rocket scientist to see where the funds must come from to rebuild things.
The approach suggested for Japan is to devalue the Yen 10%, and just magically improve the national balance sheet by 250 billion. Mostly this comes from self serving US sources that have an interest in keeping Japan's capital here to fund our failed economic policy (bubbles, excessive consumer and corporate borrowings and half trillion dollar account balances). A devaluation of the Yen would be counterintuitive to sound economic theory. It is Japan that has huge account balances not the US. The US Dollar needs devaluing not the Yen and the Japanese need their domestic capital back to reconstruct their busted private institutions. It is no longer about a spirit of cooperation, it's about survival, and Dollar assets must be sold back to Yen. In fact they could use some foreign capital as well, and the best way to attract that source is a strong currency not a weak one.
Japan's horde abroad is coming home, and the more aggressively Oz cuts rate, the quicker it will happen. And yes, gold shows strong correlation to Dollar moves. I am actually pretty bullish on Japan as a long term play. |
