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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (8229)	9/9/2007 12:24:07 AM
From: Hawkmoon	Respond to of 33421

I disagree, I see the USD index moving down and the Yen strengthening on the EUR/JPY, the GBP/JPY, the CAD/JPY etc. We'll see... I'm betting that the sum total of other countries that depend upon exports for the majority of their GDP growth will take serious action to prevent the USD declining even more. Hawk

To: John Pitera who wrote (8229)	9/9/2007 10:15:07 PM
From: Hawkmoon	Respond to of 33421

John, Been rethinking the Yen carry trade thing.. Recently Eisuke Sakakibara (aka Mr. Yen) stated he would like to see the yen rise to 100 (its' currently at 112) and raise interest rates to 1.25% (it's currently around .50%).. ``Even if Japan's currency rises to more than 100 yen, it wouldn't hurt economic fundamentals'' because the corporate sector is strong enough to compete, Sakakibara, now a professor at Waseda University in Tokyo, said in a Sept. 5 interview in Tokyo. He recommended the central bank raise rates ``as soon as possible'' to discourage so-called carry trades. bloomberg.com Obviously he perceives the carry trade as damaging and wants to see it unwound. Now as I've mentioned previously, this seems illogical to me since it obviously harms earnings for both Japanese banks (who loan to foriegners), and corporations (who depend upon exports to prop up their earnings). But I just got off the phone with my Japanese gal (who used to be a broker) and she had an interesting take on it. It seems that there's a tax-exemption for Japanese buyers of JGBs. They can invest up to $30K (USD equivalent) in JGBs and the interest is tax free. But since so many people prefer to deposit their money in postal savings, they have been adverse toward buying bonds (either corporate or government). So it's possible that the angle on unraveling the carry trade is pressure to "flush out" more domestic savings into long-term Japanese government debt. This would become increasingly attractive to Japanese pensioners due to the tax-exemption, while tightening up on the Government's ability to borrow. Of course, since the government would have to raise more taxes to pay these higher (tax free) interest rates, the burden would fall upon younger wage earners. Furthermore, she stated that Japanese people have lost their appetite for corporate bonds, and that most Japanese companies have preferred to sell stock to raise capital rather than issue debt (despite low borrowing rates). But lower corporate earnings will certainly punish the value of those shares. Still not sure I'm fully grasping the efficacy of letting the carry trade unwind, but she provided some food for thought. Personally, I think that's it's a "non-starter" if it means corporate and bank earnings are destabilized. Hawk