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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Amelia Carhartt who wrote (262)6/24/1998 12:01:00 PM
From: Henry Volquardsen  Read Replies (3) of 3536
 
Susan,

Not a stupid question at all and in fact at the heart of what has been going on. The Japanese would definitely gain an export advantage and book large profits on their current dollar holdings if the yen were to fall. All things being equal they would actually like to do this. But the reason they haven't came clear a couple of weeks ago and sparked the events that led to the current crisis atmosphere.

There was some sort of communication between the US and Japan which involved a dialogue between Sakibara and Summers. From what I gather these two gentlemen are not particularly found of each other. The subject of allowing a gradual weakening of the yen to give Japan an export boost was brought up. The US was willing to accept this. But then Sakibara started making comments to the effect that Japan felt this would have a downside of allowing US financial institutions to buy up the Japanese banking and insurance industry on the cheap. He apparently included some nasty comments as to why this was a bad idea. The US response was on the order of 'Why you ungrateful %@#*&.' That led to comments by Rubin and Summers which the market interpreted as the US telling Japan to stick it in their ear. The yen started to collapse at that point.

So the Japanese are fearful of a weakening yen because they believe we will go on a shopping spree.

Henry
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