Why is the yen so strong?

[mattley]

The yen continues to rise. Market experts talk about it as a reliable and safe currency. The dollar dropped over 3% against the yen in one day today.

Here is what I see in Japan:

-- Staggering amount of government debt.
-- Approximately the lowest central bank interest rate in the entire world
-- Produces above-average quality cars and consumer electronics--reduced prospects for these in the coming recession.

To me, this screams "run away". But these are hardly secrets. Obviously there is something important I am missing--can anyone splain it to me?

[Rajiv]

Re: Why is the yen so strong?

You should look at Elaine Supkis' "Japan Carry Trade Utterly Dead Now!"

The yen carry trade is dead. I'll be frank: the entire focus of the G7 nations is to restart this carry trade. Throughout the last three years, the G7 has ganged up on China over the value of the yuan while remaining utterly silent about the yen. Attempts were made to force China to not copy Japan. China ignored all this. Then, suddenly last summer, China began the relentless unwinding of the Japanese carry trade by the simple act of buying up yen. All news stories about the yen get things utterly backwards. They talk as if a strong yen is a good thing. It is not. It is pure hell for the dying status quo. It is why 'liquidity' suddenly vanished from G7 banks last summer. Time to take yet again, a deeper look into all this.
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[mattley]

Re: Why is the yen so strong?

I had trouble getting sense out of the article--unwinding of the carry trade, is all that I really took away. That, and people are buying the yen because everyone else is buying the yen.

I can believe that the carry trade is unwinding, nobody wants Icelandic kronor (or whatever it is) anymore. I can see this causing a temporary bump in the price of yen. I can't see why it would cause the yen to continue to appreciate or be perceived as a strong currency.

In any case, thanks for the reply.

[phirang]

Re: Why is the yen so strong?

try massive trade surplus, high domestic savings, cash rich companies, and manufacturer sans pareil as to why yen kicks ass...

[grapejelly]

Re: Why is the yen so strong?

someone's buying Yen. Yen are in great demand. Paying back loans denominated in Yen, no? That would be who, the Chinese? Perhaps Japanese housewives?

[orion]

Re: Why is the yen so strong?

Rajiv, What a wild website. I am fascinated by her theories and she definitely has a good story teling sense (gnomes, monsters, etc) but what about the truth? I am not an economist and although the carry trade is a great story how does this fit with reality? How could the japanese get away with this loan scheme? Why won't the US qualify to take their place? Thanks for the tip, I did enjoy her site.

[Rajiv]

Re: Why is the yen so strong?

She was sitting right behind Bernanke in the Bailout Hearings -- and her report on that is quite fascinating!

I find her thoughts quite insightful -- inspite (and maybe because) of her very melodramatic statements.