Mohan:
The current rise in yen/USD is quite dramatic and totally unexpected by most market participants who were predicting 145 yen/USD. However, the current trend for yen (assuming that it is a trend) is consistent with the prognosis I had posted here a long ago when it was the lowest ever 135-136.
What do I learn from this? Well, I had observed that the market was in a state of disequilibrium and USD was driven by "love the USD" because investments in the US are safe. While the basis for this love is indisputable, there is a limit for the value of love beyond the fundamentals. I do not pretend to know the fundamentals; neither did I know them when I said that the USD must/should/would fall significantly to restore equilibrium. I do not imply that a fall in USD is an indication of any impending problem for the US, except what I had stated earlier.
My fear was that an ever rising USD would dampen corporate earnings, result in a greater deficit and trade surplus; now these ills will be moderated if USD falls sufficiently, reducing the impact on the Democrats. Of course, a fall in USD will soon crack some of the ballooning stocks.
But, more importantly, I believe that yen's rise is also linked to Mr. Yen's prognosis a few days after I had made my posts here; following his visit to the US. Mr. Yen did not say what he discussed with Rubin and Summers, but he had expressed his interest in a stronger yen -- partly to alleviate the political problems and partly to improve the Asian problem. Again, I was thinking perhaps in the same rational way as Mr. Yen, Rubin and Summers standing on their feet and so it was not surprising that I had come to the same conclusion, although I did not know that they had made the same conclusion. Now, I observe a consistency of my conclusion with the results and believe that these Forex players too must have made the same conclusion, namely, to buttress yen.
I also learn something important for the future. Mr. Yen has expressed that the Indonesian Rp is very undervalued and that it should be 4000-5000 per USD, before improving further. He also has said that won is undervalued without stating a number. One should exercise caution, though, before making an investment based on this information because Indonesia is considered to be politically risky.
Sankar |
