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Strategies & Market Trends : Asia Forum
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To: Tommaso who wrote (2508)3/4/1998 6:57:00 PM
From: Michael Collings  Read Replies (2) of 9980
 
Since I'm new to this thread, I just wanted to give my opinion on the Japanese situation.....

For years the yen has been held to artificially low levels to enhance their economy. They have been able to do this by not converting US dollars (from years of trade surpluses) back to yen. Instead they just financed our debt by buying treasuries. Had they converted, the value of the yen would have gone up as the surplus nation and our dollar would have gone down.

Their low interest rates had the same effect in keeping their currency low. On the positive side this ensured markets for their products and certainly we benefited from their financing our debt.

Now through years of bad investments and a liquidity crisis, they are slowly bringing the money home to shore up their balance sheets. I suspect that has more to do with the increase in money supply than the Fed concern with a market correction.

Obviously the Japanese do not want the yen to increase significantly through this process as they still want to unload all their products on us. So far throughout the Asian crisis the US treasury market has been considered a safe haven and subsequently the Japanese liquidations have not significantly hurt our bond markets. The recent rise in rates of the last few weeks is something noteworthy though. A rise in our rates occurring with a drop in the dollar against the yen is a possible catalyst for a market correction here in the US.

I do think this process is being carefully implemented as to not cause a rash market reaction, however, the future trade deficit numbers may overshadow that caution.
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