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Strategies & Market Trends : Asia Forum
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To: Cynic 2005 who wrote (177)12/28/1997 5:49:00 PM
From: Rational  Read Replies (2) of 9980
 
Mohan:

I find the Japanese are sandwiched.

* They cannot lower the interest rate any further to boost the economy. Their lowest interest rate (at least among the G7 nations) has put a tremendous pressure on yen despite strong Japanese exports. They kept the interest rate this low to induce the American borrow/spend habit among Japanese. This has not worked. In stead, it has given a golden opportunity to international financial arbitrageurs to borrow yen and invest in other currencies, making the yen devalue automatically.


* If the Japanese raise the interest rate to enhance the value of yen, the economy will nosedive from the very precarious current state.

* By leaving the rate as it is, the Japanese see no improvement in their economy. The latest Japanese move to borrow to buy bank equity (preferred stock) is like forcing Japanese to buy Japanese bank stocks indirectly. I think even this has not worked, although the Nikkei rose somewhat due to short covering of bank stocks.

The main problem is Japanese corporate profitability for companies that cater to the domestic economy, which stems from the Japanese habit to consume less and save more. I am not sure how the Japanese government can solve the problem. They are trying to develop the home construction industry because this is a sector that is in great demand.

Sankar
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