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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Joseph Beltran who wrote (6286)	9/9/1998 9:46:00 AM
From: Sam	Read Replies (1) \| Respond to of 9980

JB, "Free money almost!" Well, not if you factor in their deflation. If they have deflation of 5%, then a rate of 0.25% is really 5.25%. I don't know what the rate really is, impossible to measure I'm sure just like almost everything else in an economy which is so distorted by their convoy system. They can't even begin figure out what their bad loans are. I found these paragraphs (especially the second) particularly interesting, from the article you linked in your previous post: <<In a sign of growing concern about Japan's ailing economy and fragile banking system, Japan's central bank said on Wednesday that it would guide the key overnight call rate down to about 0.25 percent from the previous target of ''somewhat below'' the 0.5 percent official discount rate. The Bank of Japan -- in its first monetary policy change in almost exactly three years -- also said it would seek to expand money supply by providing ample liquidity and increase liquidity injections if needed regardless of the call rate -- the rate at which private banks lend to each other overnight and the Bank of Japan's main policy tool.>> This will be an interesting test of Milton Friedmans oft repeated comment that "deflation is the easiest thing in the world to cure, just increase the money supply". I have always thought he ignored the psychological/crowd aspects of inflation and deflation. Japan has an older population who have been through hell and back. As a people, they worked hard to build prosperity after the devastation of WWII, and now they may live to see how it all could be squandered. So many golf courses and face saving, so little real cash and facing of reality.

To: Joseph Beltran who wrote (6286)	9/9/1998 9:56:00 AM
From: Ramsey Su	Respond to of 9980

Joseph, with 1/2%, I am giving the banks a 100% profit. Seriously, the next big news from Japan has to be their bank bail out plan. First, the current amount of 13 trillion Y (from memory) allocated is inadequate. How much more do they need? Second, if they are going to allow the banks to fail, how much would the shareholders lose? Who are the shareholders? Is it going to start a chain reaction? Third, if they are NOT going to allow the banks to fail, how much money do they need to recapitalize the banks? How long would it take to liquidate bad assets via bridge bank or whatever? Finally, would this be considered good news or bad news? Ramsey

To: Joseph Beltran who wrote (6286)	9/9/1998 11:09:00 AM
From: Robert Douglas	Read Replies (1) \| Respond to of 9980

Free money almost! Just borrow money from BOJ and invest it in u.s. treasuries/bonds at virtually no risk. Virtually no risk? Hardly. What about currency risk? Say you borrow on thin margin and the yen rises just 10%, you are either wiped out or incur large losses. So what is the cost to hedge away this currency risk? Well look at the futures markets. The distant yen contracts are selling at premiums to cash at the annual rate of, you got it, 5.1%. Add this to the quarter point you will pay to the Japanese bank and, surprise, surprise, you get pretty close to the rate on that U.S. Treasury. Ain't markets wonderful? Didn't a wise man once say that there was no such thing as a free lunch? I guess that applies to yen-denominated lunches too. -Robert

To: Joseph Beltran who wrote (6286)	9/10/1998 1:03:00 AM
From: dougjn	Read Replies (1) \| Respond to of 9980

I think allowing the banks to make some big money by investing in US Treasuries and pocketing the spread is EXACTLY what the BoJ has in mind. And has had. They are trying to reliquify the banks by giving them free money, in a way that most people don't understand. And accordingly gets lets oppostion. Greenspan did something similar in 90/91. Only the investment vehicle was supposed to be loans to very credit worth US companies. Instead of foreign government securities. Doug