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Strategies & Market Trends : JAPAN-Nikkei-Time to go back up?
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To: chirodoc who wrote (888)4/11/1998 9:12:00 PM
From: ahhaha  Read Replies (1) of 3902
 
The BOJ just went short Peter Tasker's opinion. The US has moved from an intrinsically deflationary economy to an intrinsically inflationary one. This means that the marginal efficiency of American labor which has been in parity with the rest of the world for several years will start declining against the marginal efficiency of other nations including Japan. Thus the dollar will decline against all other major currencies. The BOJ simply pushed it over the cliff even though their action is perceived to be a yen supporting strategy. The dollar would have fallen anyway though the work-out would have taken many months---too long for Japan to wait.

The consequences of the push are: Japanese stock market will rally strongly immediately. Japanese LT bonds will start falling only because the dollar weakness will nudge American bond rates upward and the Japanese bonds need to be beggar-thy-neighbor competitive. The direct impact of the BOJ dollar buying is the same as the US FED purchasing government T paper outright. That effect tends to break the Japanese bond fall, but in time it also has the effect of re-inflating the Japanese economy with the negative bond outcome that eventually has.

The US FED can fight the upward pressure on short rates by purchasing T Bills. They won't do this because they know the elements for structural inflation are in place, but they will delay by refusing to confirm the market move and won't act to raise the discount rate. The US stock market is precarious at best and can't take any expectation of rising rates. So it will tank. It will recover into the summer when the real trouble starts. In the fall the American stock market will crash.
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