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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Daniel Chisholm who wrote (2319)	12/15/1999 10:21:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

Viewing the performance of non-yen assets from the Japanese point of view, and seeing that they have done poorly, is merely observing the fact that the Yen has strengthened. Similarly, viewing the performance (e.g.) the Nikkei from a U.S. perspective and seeing that it has done quite well from a USD point of view significantly affected by the fact that the Yen has strengthened. agreed, that is all I was trying to convey. But to argue that, since Japanese equities have done well for Americans, Americans ought to and will continue to buy Japanese equities, seems like a foolish argument to me. I agree but I wasn't making that arguement. Fwiw I think that one needs to be very cautious about investing in Japan. But this is a personal view. My interest in this discussion was not to be alarmist about Japan or to suggest any specific positions in either direction. My interest in this is that I find the whole situation surrounding Japan to be unique and fascinating, from the roots of the problem to the present and the implications for the future. It struck me as a great way to use the power of the internet to have a diverse group like this talk it out and test the theories. Either I am extraordinarily right on this (sell Japan, sell it now, sell it hard), or am missing something really big (oops!). Dat's a very good question. The facts have been pretty obvious on Japan for awhile. A lot of very smart people have lost a lot, and I mean a LOT, of money this year trying to short the yen. So the question has to be what has been supporting the yen and is it temporary or will it be a factor for a while. My own view is that there are two factors supporting the yen. The first is that Japanese entities have been shoring up their balance sheets by repatriating funds. The second is that foreigners have been attracted to the Japanese equity markets and have been heavy buyers. My believe, as I said in earlier posts, is that the foreigners have begun buying in response to the economic growth we have seen this year. But this growth was very expensive to Japan as it required massive deficit spending. Also the Japanese themselves have been selling into this foreign demand and have been buying bonds. I don't think the Japanese can keep spending at this pace, the Finance Minister was quoted earlier in the week on the need to balance the budget, and when they stop I don't think the growth will continue. I think this will put a cap on the foreign buying. The repatriation of funds is a more difficult issue to judge. I believe it has been a self re-enforcing cycle. As the yen strengthens it encourages repatriation. So you need to keep an eye out for what breaks this cycle. The most likely, imo, is a serious signal by the government that they want to halt the yen's appreciaiton. If they choose that route it will be interesting to see how much money moves out of yen. Do you mean while the debasement is in progress, or after the fact? Isn't it a bit too late to get out of the yen after this happens? In all likliehood it won't start until after the yen has begun to weaken. But the best case scenario for Japan would be for it to happen as soon as possible. The liability side of the balance sheet is what needs to be debased. The ideal solution would be to protect the asset side by getting as much into foreign currency as possible. Henry