Mason, it is unlikely that Japan will repatriate $500 Billion over a short period, they may "repatriate" over a quarter something like $50 Billions if they need it, which I do not see why they need it. If they do repatriate $50 Billion over a quarter, the FED's will kiss their hand, for the simple reason that this action will lower the demand for treasuries. Right now, their is shortage of treasuries (about $300 MM over the next 12 months or so), and Japan supplying some of this demand would allow the FED to continue with their current "restrictive" policy. Furthermore, I believe that a small amount, annually, of the huge savings amassed by the Japanese, will find their way into foreign markets, including the US, I estimate this outflow to be some $200 billion/year or so.
If Japan goes into massive repatriation, they will kill their export to the US (and Europe), something they cannot afford, at least until they have created some increases in domestic aggregate demand. That is also why I do not believe the Yen is going soon to 100 yen/dollar, the Japanese may say that they do not like a weak yen, but the weak yen is what has prevented the Japanese economy from going down more than 5% in the last quarter.
Since the Japanese have lost the monetary flexibility of stimulating demand by printing yens (and lowering interest rates) they are left only with fiscal stimulus (they have promised to do) which takes quite a good lag time to percolate through the economy, thus any action that drastically strengthen the yen now, will plunge Japan deeper into recession, with the danger of spiralling down with the rest of Asia into a depression. I doubt that they will commit such suicide. The US would love to see the Yen back around 120, but even this level will probably take at least 9 months before it is seen again, IMHO.
Thus, right now, apart of the Asian jitters, and selective weaknesses in segments affected by Asia, I think that our markets are going to be driven by liquidity, of which there are now two major new sources, decreased demand from our treasury and "internationalization" of a small portion of the "postal system".
Zeev |
