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To: PaulM who wrote (26970)	1/25/1999 12:55:00 AM
From: Hawkmoon	Read Replies (2) \| Respond to of 116767

Collapse of the Japanese yen is inevitable, analysts say Copyright © 1999 Nando Media Copyright © 1999 Agence France-Press Market Indices \| Dow Jones Industrials \| Internet Stocks \| Most Active \| Gainers \| Losers \| Company Sleuth By PHILIPPE RIES TOKYO (January 23, 1999 9:10 p.m. EST nandotimes.com) - Japan must soon admit that the only way to stem deflation is to print a huge amount of money and cause an inevitable collapse in the yen, economists say. How far could the Japanese currency fall? "250 yen to the dollar," said Takeshi Fujimaki, head of the Tokyo branch of Morgan Guaranty Trust Co. Fujimaki admits this level, which would be the lowest for more than 15 years, is an extreme prediction. On the markets forecasts are more moderate. These say that the yen, now trading around 113 to the dollar, will likely stay strong until the end of March, the close of the Japanese fiscal year, before sliding down toward 140 to the dollar. Nevertheless, most economists admit the scenario Fujimaki describes is plausible. At the heart of this bleak prediction is the dramatic collapse in Japan's public finances, confirmed by an internal finance ministry report. According to the report Tokyo will have to issue 30 trillion yen ($230 billion) in government bonds every year until 2003, the Asahi Shimbun said Thursday. "The balance of supply and demand is completely out of line," said Fujimaki. No buyer would be able to absorb that much paper. Certainly not private investors. "Everybody fears holding JGBs (Japan government bonds). More money will go abroad," he said. Nor will the finance ministry's Trust Fund Bureau, which has already been force-fed government bonds and is under pressure to take more to keep Japanese companies afloat. And finally, and most importantly, nor will the Bank of Japan -- a lender of last resort which has already had enough. "The increase in assets has been such and quality is deteriorating so substantially that it cannot buy more JGBs," said Fujimaki. The logical result of this breakdown of supply and demand is a surge in interest rates. For Fujimaki, it is "not impossible" to have a 5 percent return on 10-year government bonds soon, which would be eight times higher than the historic low of 0.67 percent touched on September 18 last year. "A weak country's currency has to be weak. The easiest way to get out of deflation is a weak yen," he said. The problem has arisen because the collapse in public finances will force the Bank of Japan to follow the advice of leading international economists, like Paul Krugman of MIT or David Roche of Independent Strategy, who forecasts the dollar at 160 yen. These economists have argued that the country must be cleaned up with a flood of yen. ING Barings, for example, says the monetary base needs to grow at up to 30 percent a year to restore an economic equilibrium. "My argument is that if the government doesn't let the yen weaken substantially the Japanese economy can stagnate for another 10 years," said Fujimaki. "With a weak yen Japan can survive. We need inflation to let the yen devalue." The return of inflation would finally let the property and stock markets hit bottom and rebound. The financial system, with its growing bad loans, would be able to raise its head above water. As for the external effect of such a collapse in the Japanese currency, Fujimaki dismisses any negative impact. "What is important is not the exchange rate but to help the Japanese economy, otherwise we cannot support others. If the Japanese economy stagnates for another 10 years, Asia will collapse." ***************************************** If the Yen collapses, where do you all think that money is going to flee to?? Yep... The US and Europe. This could get really nasty with regard to the trade deficit. And it would drastically impact China and Korea as well as the rest of the region. And if that money comes to the US, it may alleviate some of the pressure on the dollar from gold competition. Regards, Ron