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

To: Zeev Hed who wrote (7060)	10/11/1998 6:01:00 PM
From: Joseph Beltran	Read Replies (1) \| Respond to of 9980

Zeev, I tend to agree with you regarding the near future prospects for the yen. In my opinion nothing fundamental has changed vis a vis Japan. They still have done nothing to resolve their problems in the banking sector, much less the lack of domestic demand. As far as I can tell the current "strength" in the yen is totally related to the operation of hedge funds and perhaps the temporary repatriation of capital into Japan by banks selling U.S. bonds. (At least they picked the appropriate time to sell). The situation will reverse and the yen will go back up to 130-135/dollar. I am beginning to wonder -after over one year since the inception of this "crisis"- whether korea, thailand, indonesia and others would have been better off just defaulting on their loans. The principal which they owe has not changed. They have been borrowing just to repay a portion of the interest owed. And they have done so at the expense of massive social upheaval and human misery. Had these countries defaulted it would have caused Japan to officially acknowledge and tackle their bad loan problems earlier rather than later. The debtor nations would have been placed on a debt moratorium. As far as I can tell, that is EXACTLY what has occurred to them anyway. regards

To: Zeev Hed who wrote (7060)	10/12/1998 12:36:00 AM
From: chirodoc	Respond to of 9980

Big BANG Phase II--278 yen/dollar? By Martin A. Armstrong April 1st brought Phase I of Japanese Big Bang, which marked the deregulation of the securities industry. Commissions on transactions in excess of 50,000 yen are now negotiable and this is already causing a serious issue of competition. The likelihood of numerous small brokerage houses in Japan rolling over is quite high. Without new forms of western style products, they will be the first victims of Big Bang over the next 12 months. Phase I has also sparked some fears in the hearts of the Japanese securities industry. We have seen a rash of new commodity fund activity in Japan. A commodity fund in Japan is a futures fund. There is a regulation that 51% must be invested in commodities at all times and the balance can be invested in financial futures not commodities. The schemes used to meet these requirements are largely a cash-and-carry business in gold. In other words, 51% of the cash is invested in gold, which is then sold forward. In reality, this earns interest and has not exposure to commodities at all. However, a cash-and-carry gold-repo meets the requirements for a 51% commodity investment with the remainder being prohibited from trading in commodity futures. Therefore, those who have got themselves all excited how Japanese will now buy the metals aggressively had better look a little closer. A Japanese commodity fund is a fund that is not allowed to invest in commodities if you understand the inner workings of these products. While deregulation of the securities industry has now allowed the issue of these futures oriented products; we are still talking about a few billion dollars and nothing serious. The big money lies in Phase II of Big Bang due to arrive in December 1998. Phase II will be the deregulation of the trust funds currently some US$9 trillion under management in Japan. Anyone questioning why we are warning that the dollar/yen could reach 278 by 2003 had better get familiar with Phase II of Big Bang. The investment trusts in Japan are the equivalent of the mutual fund industry in the west. Currently, the total amount of funds in this area amounts to JPY1,200 trillion (equivalent to US$9 trillion) of individual financial assets in Japan. It has been the stiff regulations in this industry that has prevented massive amounts of capital leaving Japan in search of higher yield and opportunity. While foreign investment trusts management companies (ITMC) in Japan have demonstrated favorable performances over and above their Japanese counterparts, the amounts of funds raised thus far has still been minimal in comparison. Goldman Sachs ITMC has captured only JPY410 billion (US$3 billion), Alliance Capital ITMC has attracted JPY523 billion (US$3.84 billion) at the end of March 1998. While such inroads have been impressive, the amount captured by foreign fund managers is still quite small in comparison to the potential. In Japan, interest in asset management is increasing significantly. In case of young Japanese investors, they are ready to take risks and try to increase assets by moving offshore. This trend has been helped by uncertainty in the future whether their expected pensions in Japan will ever be realized. Confidence in Japan, both public and private, is starting to collapse. We see this trend similar to that which occurred in the US a decade ago when the public trust in social security began to decline. A CNN poll of several years ago in the United States taken among of the younger generation showed that over 50% believe that stood a greater chance of seeing a UFO than their first social security check. In Japan, the same feeling is starting to rise significantly. Among this generation, its is expected that the investment trusts will grow from the current level of JPY40 trillion (US$294 billion) to JPY200 - 250 trillion (US$1.47 - 1.84 trillion) in the coming 10 years. This is yet another opportunity for Phase II of Big Bang. The key word in Phase II is "Deregulation" in December 1998. Sales of investment trusts through city banks counters will be completely liberalized. So far securities companies have monopolized sales of investment trusts. Now, banks and life insurance companies will be able to sell investment trusts managed by themselves or by third parties from December this year. In other words – Big Bang has just begun. We believe that NO degree of government intervention will succeed in preventing the dollar from rising to pre-G5 levels of 278 over the next few years.