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To: Oeconomicus who wrote (5831)	1/7/1998 1:49:00 PM
From: Rational	Read Replies (1) \| Respond to of 27307

In real terms, Japanese govt bonds offer 1.75%, with nearly zero inflation and US rates are 5.7% with an inflation of about 3%. The difference between the real rates (5.7 - 3=2.7) and 1.75 has been reducing yen/UD$. But, this has made the US trade deficit soar, which weakens the fundamentals of a country. Why? Fed will like to cut the rate to keep US firms competitive under shrinking profits scenario, but there will be a large-scale pull out from US$ positions which can make it difficult for Treasury to raise more debt. Increasing the rate will further erode corporate profits and raise the budget deficit. It is a very complicated point of disequilibrium which cannot be sustained, IMO. Sankar