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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Ahda who wrote (1580)	3/15/2001 2:36:25 PM
From: Ahda	Respond to of 24758

What does this mean a domino affect is about all so if the yen is devalued then everyone else follows suit to remain competitive. So the US dollar looks strong but the problem is the exports aren't and won't be. So then i think growth we are back to the most bang for the buck . Of course fortunately there are numerous people who love where they live but that could mean a severe reduction in employment here so they can live. Hell there has to be something wrong my thinking it is too simple. feer.com ALL EYES ON THE YEN -------------------------------------------------------------------------------- By Tom Holland Issue cover-dated March 22, 2001 -------------------------------------------------------------------------------- As if the United States' slowdown weren't enough to worry about, Asian policymakers now have another economic threat to keep them awake at night: the prospect that Japan's leaders will drastically weaken the yen in a desperate attempt to reflate their ailing economy. If they do opt to depreciate the yen, the consequences for the rest of Asia will be severe. Despite Japan's unexpectedly strong 0.8% growth rate in the fourth quarter of last year, few forecasters are optimistic about the economy's prospects for 2001. Some pundits are even predicting economic performance this year will be worse than 1998's record 1% contraction. With interest rates already only a shade above zero, and with persistently high government spending having little effect, Japanese officials are left with few policy options to fight deflation and stimulate growth. One is to weaken the yen. A weaker yen would be effective on two fronts. First, it would lower the prices of Japanese goods in other markets, boosting Japan's struggling export industries. Second, it would bump up the local-currency price of foreign goods sold in Japan, countering domestic deflation. But what's good for Japan is bad news for the rest of Asia. According to Rob Subbaraman, an economist at Lehman Brothers in Tokyo, Japan has the capacity to add as much as 3.3 percentage points to growth rates elsewhere in Asia this year, or as little as 0.1 of a percentage point, depending on the value of the yen. Should the yen fall to ¥140 to $1--a level many economists now believe is well within the bounds of possibility--Japan's contribution to regional economic growth will be negligible, he warns. The impact of a weaker yen would fall first on trade. Some 15% of Asia's exports are shipped to Japan. A weaker currency would mean less Japanese buying power and less demand for the region's goods. Even more ominous is the competitive threat to Asia's exporters. Around 45% of South Korea's exports compete directly with Japanese goods in third markets. When Japan weakens its currency, South Korea has no option but to follow suit. Over the last six months, during which the yen has weakened against the dollar by 11% from ¥107 to around ¥120, the won has depreciated 13% from 1,115 won to $1 down to 1,280 won. Although nearly as vulnerable, Taiwan has been more reluctant to sacrifice its own hard-earned currency stability. Even so, the New Taiwan dollar has fallen too, by some 4% over the same period. Competitive devaluations may help to support national export industries in the face of a weaker yen, but they carry costs of their own. To maintain the value of their currencies against a softer yen, Asian governments must sanction trade-weighted depreciation, raising the price of imports from elsewhere. Given Asia's residual overcapacity, inflation is not an immediate threat. Nevertheless, upward pressure on prices reduces the scope of central banks to lower interest rates at a time when cheap money is needed to lessen the pain of essential economic restructuring. Falling currencies also deter much-needed inward investment, with companies and institutions in the U.S. and Europe likely to withhold direct and portfolio investments given the extra risk of loss posed by the foreign-exchange markets. As if that weren't bad enough, a weaker yen will also reduce Japan's appetite for regional investment. With Japan traditionally the source of 30% of Asia's foreign direct investment as well as much of the region's bank loans, other Asian countries can ill afford an additional cutback in funding. How to support the export sector while remaining attractive to investors poses an especially cruel dilemma for China's policymakers. The 1998 depreciation of the yen to ¥148 to $1 drew howls from Beijing, with an implicit threat to devalue the renminbi should the yen continue to fall. This time around, China's exports are suffering already, with the situation only likely to deteriorate further as the global slowdown bites. The renminbi's unofficial peg to the dollar leaves little room to relieve the pressure by adjusting the currency, a step Beijing would anyway be unwilling to take while the priority remains to attract inward investment ahead of China's accession to the World Trade Organization. For the time being Beijing can buy itself breathing space through fiscal stimulus measures, but if the yen and other Asian currencies depreciate over the long term, the risk of renminbi devaluation will be on the agenda once again.