I2, My best answers to your questions (and I am not an expert here by any means) would be the following:
With respect to the 140+ Yen level, the problem here may have to do with the direction of the economy. It's one thing to have a weak currency with an improving economy. It may be another to have a currency falling in value when your economy is continuing to slide downward. Another confounding problem here is the fallout from the weak Yen on other regional currencies. The linkage is such that as the Yen goes, so go the other currencies. The underlying economic problem there has to do with international debt. As the currencies in the region lose value, and to the extent that the debt (repayment) is dollar denominated, the number of bankruptcies increases dramatically. This brings us in turn to the fact that the banks in the region, but particularly the Japanese banks cannot take any more bad loans.
With respect to the Nikkei at 14,000, I would definitely NOT buy the Nikkei at that level. The reason is that a substantial portion of Japanese banks' asset portfolios is Japanese stocks. As the level of the Nikkei falls, so does the value of Japanese banks' assets. The 14,000 Nikkei level is the level at which many feel the Japanese bank asset levels will be so low that the banking system will undergo complete systemic failure. That may very well involve the wholesale dumping of Japanese equities by Japanese banks. If it does, the Nikkei will not stop at 14,000, and could fall well below 10,000.
Remember that at the heart of the problem in Japan is the terrible combination of (1) a declining economy (particularly domestically) and (2) a banking sector that is on the verge of total collapse. The real problem is that the Japanese have wasted 6-8 or more months of very valuable time when they could have been taking constructive action (particularly bringing in powerful western banks through mergers, etc.) doing absolutely nothing. The real question now is, is it too late.
jess. |
