Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Mark Adams who wrote (41173)	11/9/2003 4:31:13 PM
From: Seeker of Truth	Read Replies (2) of 74559

Hello Mark, "Someone would arbitrage the rate differences." It has been done on a large scale in recent years. But every once in a while the yen goes up in value bringing sudden scary losses to the heavily leveraged folks. One can only make noticeable money on an arbitrage like yen bonds/dollar bonds if one leverages a lot. The yen carry trade "carries" a risk. Neither the yen nor the US dollar have a future vis a vis gold or, particularly, oil, but they oscillate with respect to each other. I don't know about hedge costs. What goes on in Japan is this: Most people are saving yen like mad, into the post office mainly. Disinclination to buy, proliferation of much more efficient modern retailers, and opening the barriers to Chinese goods, have all cancelled out the inflation which one would think is inevitable for a government that has such an unbalanced budget, year after year. But the patient Japanese people are fairly confident that they will get their original purchasing power plus interest from their yen deposits. As long as the confidence is retained and the above deflationary forces are around, the government can keep out inflation, even though promises to pay in the form of government yen bonds are multiplying like bacteria. Actually, the current deflation is only of the order of -1% per year; it's not like the CPI is cheapening fast. Like most of these things it's hard to predict the date of the inflationary explosion. My belief is it will be quite slow coming in Japan because people will keep their faith in the currency long after they have begun to see their savings decrease somewhat in purchasing power. It's like some people and tech stocks. I have good friends who are soon to retire in Japan and I do think financing their final days will ultimately be difficult. They don't think so yet and I have no intention of depressing them with this kind of talk. There might be money to be made in Japan by buying a company which has predominant investments in China. In a way, I don't see the point; why not directly invest in China? It's not as if the P/E of Japanese shares is very low.

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