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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: EL KABONG!!! who wrote (31692)	4/17/2003 9:59:21 AM
From: Wyätt Gwyön	Respond to of 74559

As long as the Japanese equivalent of Joe Six-Pack has very few viable investment opportunities in Japan, s/he will remain quite content to leave their investments in the relative perceived safety of US$ denominated investments the Japanese J6P does not invest directly in USD securities, at least in any size. Japanese consumers have the overwhelming majority of their assets in the Japanese banking system and postal savings system, held largely as time deposits. these funds total some $12 trillion, which is now on par with the total US stock market capitalization. Japanese forex holdings are controlled, either directly or indirectly through informal, extralegal guidance, by the Ministry of Finance. it is an essential element of their policy to build and maintain a huge external net investment position and they have a structural current account surplus which depends on a weak yen (which depends on not repatriating their USD holdings). hence there will be no repatriation until the entire system breaks apart. which will probably happen eventually, and in very ugly fashion, but nobody knows when or exactly how. but this repatriation will be as much about political change in the control of Japan, as it is about any asset allocation decision. for right now, the people who control Japan are unelected bureaucrats who are not accountable to the public or any judicial oversight. as has been the case for the last 100 years. the Japanese banks, post office, and nonbanks take these funds and invest them largely in JGBs (Japanese Govt. Bonds), which are the lowest-yielding bonds in the history of the world. the Japanese J6P's idea of saving for retirement is rather different than US J6P. in the US, J6P has been deluded by mutual fund propaganda into thinking he will get an 11% return on his money over "the long run". hence US J6P saves very little money because he thinks the magic of compounding interest will save him. by contrast, Japanese J6P, despite his mathematical skills which are superior to US J6P, does not believe his savings will compound magically. and in fact they won't, since they are invested in JGB's. to make up for this, Japanese J6P saves a lot more money as a percentage of income than US J6P. this excess of savings in Japan is one reason there is no consumer-led demand there (there are many other reasons, such as their distribution cartels and poor consumer-finance industry, which causes many ordinary people who need money to regretably rely on loan sharks). this is also part of the design of the Japanese system. it is supposed to be an export-driven economy. therefore the MoF has maintained control of Japan's forex holdings and does not allow their repatriation. this causes depressive conditions in Japan, and hence interest rates are low despite massive credit pumping and deficit spending. and with low expected returns, Japanese J6P thinks he needs to save for retirement "the hard way". and so he doesn't spend, but saves. which keeps the economy from recovering. and so on... Traditional and mutual distrust between the Japanese and the Chinese would make it unlikely that the Japanese would switch over to Chinese investments as well. on the individual level, sure Japanese people might not like the Chinese (although they hate the Koreans more). but J6P does not invest in equities to begin with, either in the US or China. however, on the macro level, actually the Japanese are the world leaders in Chinese FDI (Foreign Direct Investment). this is also having a depressing effect on Japan, because Chinese labor, etc. is much cheaper than in Japan. but because of Japan's laws, manufacturers find it politically impossible to shut down their high-cost Japanese plants, even as they open lower-cost ops in China and the rest of Asia ex-Japan. so this just creates more capacity which furthers the deflationary effect.