Hello....Tony V posted this on the Brazil thread and I think it has bearing on where we are all going on this...
Then, my reply.
Clark- from Monday's South China Morning Post. To think that not so many years ago we wore WIN buttons.
Monday January 25 1999
Analysis
Japan 'needs weaker yen to survive'
AGENCE FRANCE-PRESSE
Tokyo, whether it wants to or not, must soon admit that the only way to stem deflation is to print a huge amount of money and cause an inevitable collapse in the yen, economists say.
How far could the Japanese currency fall? "250 yen to the dollar," said Takeshi Fujimaki, head of the Tokyo branch of Morgan Guaranty Trust.
Mr Fujimaki admitted this level, which would be the lowest for more than 15 years, was an extreme prediction.
The market forecasts are more moderate. They say the yen, now trading at about 114 to the US dollar, is likely to stay strong until the end of March, the close of the Japanese fiscal year, before sliding down towards 140 to the dollar.
Nevertheless, most economists admitted the scenario Mr Fujimaki described was plausible. At the heart of this bleak prediction is the huge collapse in public finances, confirmed by an internal finance ministry report.
According to the report, Tokyo would have to issue 30 trillion yen (about HK$2.02 trillion) in government bonds every year until 2003, the newspaper Asahi Shimbun said.
"The balance of supply and demand is completely out of line," said Mr Fujimaki. No buyer would be able to absorb that much paper - whether private investors or even the Bank of Japan, a lender of last resort which has had enough.
The logical result of this breakdown of supply and demand is a surge in interest rates.
For Mr Fujimaki, it is "not impossible" to have a 5 per cent return on 10-year government bonds soon, which would be eight times higher than the historic low of 0.67 per cent reached on September 18 last year.
"A weak country's currency has to be weak. The easiest way to get out of deflation is a weak yen," he said.
The problem has arisen because the collapse in public finances will force the Bank of Japan to follow the advice of leading international economists, such as Paul Krugman of MIT or David Roche of Independent Strategy, who forecast the dollar at 160 yen.
These economists have argued that the country must be cleaned up with a flood of yen. ING Barings, for example, says the monetary base needs to grow at up to 30 per cent a year to restore an economic equilibrium.
"With a weak yen, Japan can survive. We need inflation to let the yen devalue," Mr Fujimaki said.
The return of inflation would finally let the property and stock markets hit bottom and rebound. The financial system, with its growing bad loans, would be able to raise its head above water.
As for the external effect of such a collapse in the Japanese currency, Mr Fujimaki dismissed any negative impact.
"What is important is not the exchange rate but to help the Japanese economy, otherwise we cannot support others," he said.
"If the Japanese economy stagnates for another 10 years, Asia will collapse."
My reply...
Many thanks Tony for this, perhaps the single most important post about Japan I have read in a year.
They are going to print money like hell. But what they will face is consumers waiting for cheaper prices and still cheaper... more deflation.
Very interesting "piece" on NPR about the mid level Eurpean banks operating on 25% of the profits of US banks... with European banks holding $600 million of "emergent country loans in their portfolios". With the Euro these small banks just lost most of their foreign exchange dealings. This, perhaps, is the next shoe. Never knew there were so many god damned shoes.
Basically, Japan is "competitively devaluing" before the Chinese.
Now we hve the various "hedges" of the mid sized European banks starting to get into trouble. Watch out below!
Simply Amazing.
Best to you,
Clark
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