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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Arran Yuan who wrote (70084)9/22/2006 10:06:35 AM
From: YanivBA  Read Replies (1) of 110194
 
But Japanese government would not like Yen to rise since it is the biggest carry-trader with enormous amount of debt (oops, sorry my mistake, Many believe it is a great asset, at least in the financial world) and a budget deficit.

1. Even if the Japanese government would not like the Yen to rise it would be because of jobs and not because of their debt. No fiat currency government ever worried on having to pay it's national currency nominated debt.

2. My argument is that if the carry trade unwinds the Yen will rise predominantly against the euro and will probably do it too fast for any government to react.

3. Even if the Japanese government would like to see a lower Yen how are they going to do that? Lower interest rates some more?

What people don't understand is what deflation is. The undying heart of every deflation is a government bonds bull market. The lower the interest rate goes the more resources are sucked from the real economy and into make believe paper that funds value destroying government operations. The only way to stop a deflation is to burn the bond bulls by taking the interest rate up and keeping it up.

Now, of course, the BoJ would not share my view but the point is it has no way of lowering the real interest rate which is the only thing the Japanese economy and the Yen exchange rate really care about. As long as the Japanese bond bulls know that they are being paid a real interest rate that is satisfactory why should they risk the market economy? And if the deflation spreads to the rest of the world won't that same argument suggest the repatriation of the Japanese global investor?

Fiscal expansion is the only option but as they tried it for so many years I think the people might sense this leads nowhere and show it on the polls.

As (...) an ATM of USA after WWII, the yen goes where and when FRN$ goes.

Sorry, I don't know what is the FRN$ and would generally need an explanation to this sentence.

YanivBA.
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