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Strategies & Market Trends : JAPAN-Nikkei-Time to go back up?
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To: Step1 who wrote (1652)12/14/1998 3:46:00 PM
From: FACTUAL  Read Replies (1) of 3902
 
Thanks for your response. I had forgotten about the relatively low level of credit card usage in Japan and the impact of that on internet shopping.

My concern for the economies of China and Russia has less to do with their trade numbers and more to do with global Tier 1 capital contraction and specific Japanese bank exposure to these ( in particular the Chinese ) economies. Bear with me as the explanation is long and relatively tedious.

Assuming that World GNP is 30 trillion dollars and that Tier 1 capital is twenty percent that would give us 6 trillion dollars. Declared losses in the Russian GKO speculation has reduced bank Tier 1 capital by about 350 billion dollars or about 6%. Consequently I am assuming that additional exposure to GKOs as well as the Chinese banking system could reduce Tier 1 capital by a total of 10% or about 600 billion dollars contracting credit by 3 trillion dollars. This has to result in a severe credit contraction. Thus any moves by the US Fed or the ECB that does not increase liquidity will increase risk to economic expansion till this Tier 1 capital loss is replaced. If the Chinese devalue then Japanese banks will face conversion losses on their credit assets in that region that could accelerate in a further search for safe harbour ( or as is commonly referred to as the flight to safety. ) Furthermore, a Chinese devaluation would impact Japanese banking assets in Asia as these economies do compete with China and a devalued yuan makes China more competitive vis-a-vis these countries. Combined with the search for safety this could result in Asian Flu- Episode 2. Sorry for the long explanation but it is based on a number of assumptions that may be all wrong.

The recent strength of the yen has been the result of sudden and increasing demand for yen to pay of yen financiers which were being used to fund the now worthless GKOs. Within a year I look for the yen to decrease in value- perhaps to about 140 vis-a-vis the dollar assuming no major change in the economic arena.

Thanks
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