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To: nihil who wrote (69141)	10/6/1998 2:39:00 AM
From: Aaron Cooperband	Respond to of 176387

Nihil - Re: "The $10 trillion in savings earning <.5% will be dispersed when the finance industry (increasingly dominated by American joint ventures) come up with instruemnts that pay decent earnings and are hedged against a fall in the dollar" I very much doubt that there will be a sudden influx of high yielding Yen denominated assets in Japan, regardless of American joint ventures. The reason: Take any dollar (or other currency) denominated investment and discount the cash flows back at the prevailing zero coupon $ swap rates. Then convert this amount to Yen at the current exchange rate, and future value this amount to an equivalent maturity, using prevailing zero coupon Yen swap rates (we will ignore the price of the libor/libor swap for argument's sake). having done this, you will have created a currency hedged Yen note. The results: you will find that the note's spread over the equivalent Japanese government bond will be significantly less than the spread of the $ note over US Treasuries. Thus, the high yielding US$ asset has been converted to a low yielding Yen asset. There is no way around this. To achieve high yields the joint ventures have to offer their Japanese clients investments that are not pure fixed income type hedged instruments, but ones that contain some kind of market risk to enhance the yield. For obvious reasons, the Japanese have been (and will probably continue to be) skittish about piling into these investments en-masse. Thus, unless the Japanese suddenly become willing to take outright FX or other market risk, you will not see any massive exodus of capital out of Japan soon. Aaron