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To: PaulM who wrote (8621)	3/21/1998 12:04:00 AM
From: Terry Rose	Read Replies (1) \| Respond to of 116802

Paul, I find it very curious that the U.S. has not tried to talk the dollar down or intervene at this stage of the game. Sooner or later the yen will drop to a value where the Japanese have to substantially liquidate their U.S. bond and equity assets to prevent a meltdown. This will have a severe effect on our markets. My suspicion is that the current gameplan is that Japan is liquidating these assets at a slow enough rate not to effect the U.S. bond and stock market. I also think that the plan is not working as evidenced by the drop in the value of the yen. There is probably a critical dollar yen ratio that is a flashpoint. When hit the rate of liquidation will accelerate and these U.S. assets will have to be sold into a down market. An analyst that I have great respect for predicted three years ago that our markets would crash as a result of a liquidity crisis in Japan. His current prediction is that one of Japan's top four banks would go bankrupt this year and that it would be like an atom bomb going off. Terry,

To: PaulM who wrote (8621)	3/21/1998 6:48:00 AM
From: Michael	Read Replies (1) \| Respond to of 116802

Paul, I'm still confused. <g> My view is the plain vanilla Japan-will-repatriate, call in loans and liquidate on a huge scale when things get tough enough. The world's bond, stock and real estate markets will know. OK, I understand that, a liquidity crisis causes Japanese Government and Financial Institutions to cash in their overseas holdings so money flows OUT of the US. However there seems to be an equally plausible scenario, for a massive outflow of funds FROM Japan TO the US starting as a result of the big bang. This scenario is based on the understanding that currently Japanese retail depositors are prevented from Investing outside Japan. A restriction that will disappear on April 1. (This restriction issue is the key part of this scenario. I don't know if it is in fact correct. Have you any information here?) Anyway, the scenario goes that on April 1, Joe-Sixpack-San will look at the .7% he is getting on Yen deposits, compare that with the 6.x% he can get in USD Treasuries plus the likely appreciation of the US$ and send his money overseas. You do seem to refer to this: Re: the big bang and currency flows, the flow of money out of Japan will intensify as long as investors have a choice. This will aggravate liquidity problems in Japan, until a full blown liquidity crisis leaves Japanese investors with no choice, except to liquidate. Then the flow will reverse. However I am not sure we are talking about the same thing. I can't see a reason why a liquidity crisis would cause retail investors to liquidate their new overseas holdings. Also if its just liquidity why couldn't the BOJ just pump more money in ? Of course repatriation and foreign investment could happen at the same time but while Japanese institutions have a lot of foreign assets they could repatriate, this amount is dwarfed by the amount of individual Japanese savings which in theory could go overseas. When I try to put these facts together I feel like I am looking over a cliff with no clear view of what the bottom is. If the Japanese don't raise their rates, their banks will possibly be decimated by Capital flight. If they do raise them then borrowers will be hit hard which will affect the banks, plus existing Japanese bonds (which are a significant source of the banks asset base) will be severely devalued. I think its significant in this respect that Buffett and Soros have apparently bought bonds recently. If the money flow was going to be out of the US then that would probably not be a clever move. What do you think about this second scenario. Michael