Japanese deflation & the Yen

[karim0028]

Hey Guys,

Im curious, anyone have any insight as to why during the japanese lost decade the yen gained so much against the dollar even though the japanese went towards the same keynesian bull crap we are embarking on now?

The Yen went from ~160/$ to 79/$ it gained/appreciated 100% against the dollar.... Why? The currency kept gaining strength while the govt continued to spend them selves silly...

[GRG55]

Re: Japanese deflation & the Yen

Hey Guys,

Im curious, anyone have any insight as to why during the japanese lost decade the yen gained so much against the dollar even though the japanese went towards the same keynesian bull crap we are embarking on now?

The Yen went from ~160/$ to 79/$ it gained/appreciated 100% against the dollar.... Why? The currency kept gaining strength while the govt continued to spend them selves silly...

Try Googling "carry trade"

[Masher]

Re: Japanese deflation & the Yen

Hey Guys,

Im curious, anyone have any insight as to why during the japanese lost decade the yen gained so much against the dollar even though the japanese went towards the same keynesian bull crap we are embarking on now?

The Yen went from ~160/$ to 79/$ it gained/appreciated 100% against the dollar.... Why? The currency kept gaining strength while the govt continued to spend them selves silly...

Use Metalman's trick.

google site:itulip.com yen dollar

Why is the yen so strong? - iTulip.com

[ken]

Re: Japanese deflation & the Yen

Could it be because they are not as willing to "print" money, as the US is, or there is some agreement that they will not "quantitatively ease." Weren't they resistant to "inflation targetting" for the longest time as a method of pulling themselves out of their slump? I wonder if they have set inflation targets now. I wonder how much of their debt they have "monetized." It does seem like the yen eases down every time there is downward pressure towards 95 to the dollar. I also wonder how much of their bank losses have been recognized, or "written off." I feel like I should know the answer to these ponderings, but somehow I'm not so sure since I have only a superficial understanding of the concepts in quotations...Any comments, especially ones that educate, are welcomed.

[hayekvindicated]

Re: Japanese deflation & the Yen

Short answer: Japan is a creditor nation and was an export driven economy. The US is a debtor nation and an importing/service economy. The dynamic is totally different.

Also, remember that when Japan was printing some money and keeping interest rates very low, Alan "Maestro" Greenspan was flooding the world with Dollars. The fact that the Yen rose against the Dollar to some extent proves nothing in reality.

Check the Yen price of gold in 2001 versus the Yen price of gold in 2009 - even with yen appreciation, Gold is much higher now than it was in 2001 in Yen.

The Japanese will ultimately pay a very heavy price for running massive government debts - which now exceed 200 percent od GDP. It will eventually result in inflation and cause the Yen to tank. But that is some way off yet.

[grapejelly]

Re: Japanese deflation & the Yen

Japanses squandered their citizens' savings

US squandered the entire world's citizens' savings.

[c1ue]

Re: Japanese deflation & the Yen

The real factor as GJ has noted is that Japan's debt is owed entirely to itself.

There were also political developments - look up the Plaza accord.

[karim0028]

Re: Japanese deflation & the Yen

The real factor as GJ has noted is that Japan's debt is owed entirely to itself.

There were also political developments - look up the Plaza accord.

Im trying to figure out why who you owe the debt to matter? Wouldn't a private citizen sell his bonds as and run to the exists like a foreign creditor? Also, wouldn't a foreign creditor actually hold on longer in for political reasons.... Please expand if possible....

[JKD]

Re: Japanese deflation & the Yen

I think karim0028 is referring to the move from 1990-95. My understanding is that this move was in large part due to the massive repatriation of JPY from overseas. During the collapse of their bubbles, assets from overseas were constantly being brought back home for ongoing balance sheet repair (or at least window dressing).

The JPY bottomed out about three months after the stock market topped out, and made its high (USD/JPY low) five years later after two months of massive concerted intervention by Japan and the US. It got to the point where banks were selling into the intervention knowing that its cessation meant a quick drop and easy profits. Ironically, the USD/JPY low was made on one of the few days during this period where there was no official intervention recorded, April 19th, 1995.

There was lots of talk at the time that the print below 80 was forced. There was no real retest of the low and once we cleared 90 in July it was pretty much straight up to near 100. The Japanese have sold USD every time we've been above 125 since.

I am not sure the carry trade was ever the predominant influence on the USD/JPY exchange rate (I am in the minority). You can borrow cheaply in one currency to lend dear in another but there is NO way to hedge the currency risk without giving up the very spread you are trying to take advantage of. The number of people/funds willing to take on the currency risk in this manner is smaller than advertised, IMO. As you know, the US now has a ZIRP and if anything the JPY has trended higher through its adoption. Obviously it was a somewhat popular strategy, but if the JPY carry trade was anywhere near as crowded as advertised I would think there would be some artifact in the price history to record its unwind.

John

[c1ue]

Re: Japanese deflation & the Yen

Im trying to figure out why who you owe the debt to matter? Wouldn't a private citizen sell his bonds as and run to the exists like a foreign creditor? Also, wouldn't a foreign creditor actually hold on longer in for political reasons.... Please expand if possible....

If you are Japanese - outside of Japan is like the old maps were 'Monsters be here' was written everywhere not intimately well known.

Thus despite the 0.0xx% interest rates, Japanese still keep trillions of dollars in the Japanese postal system savings accounts. On a similar vein the vast majority of Japanese have zero interest in living anywhere else, indeed cannot conceive of it.

Just look at the Japanese who moved to Brazil; they and their kids are not even considered Japanese anymore.

As for foreign creditors - they will hold on exactly as long as it benefits them. The US is about to find this out once the trade deficit turns positive...

[ken]

Re: Japanese deflation & the Yen

I arrived in Japan in 1990, shortly after the bubble there burst. I rode out the lost decade there, returning to the US in 2001. During that time, I never really paid attention to economics, until I found this site in 1999. I think that was about the time that Yamaichi Securities, some 100 years, or so, old institution collapsed...and there was talk about the banks being broke and zombie companies. When I went back to visit in 2006, I noticed that real estate prices in the southern prefecture of Osaka were on par with those of Texas. Although, the amenities are much less than you would get here for the same price, I couldn't believe how cheap they were. And there were foreclosed homes in the relatively high-end neighborhood where I stayed. I vaguely remember people protesting losses to tax payers there in the news, but I don't remember bailouts being explicitly discussed there.

When you say the US is a debtor nation, and Japan is a creditor nation, I guess this refers to trade surpluses and deficits. So if Japan has all this surplus money, did they use it to "stabilize" the banks. If so, how? I mean, did the government turn the postal savings over the banks? Did they bailout their institutions there with public funds, and how is that different from the way our government bailing out our banks? Is a Japanese bailout somehow not inflationary because the money existed in private savings accounts, whereas any bailout money in the US must be created going forward? --Okay, I'm reaching here; it's just a thought based on my limited knowledge (which can be a very dangerous thing.) I think I need to get an MBA to understand this, but I wonder if getting an MBA is still worth it. I think I'd rather paint and write songs.

Anyway, I'm assuming that the real estate crash there was the major cause of their bank failures. I remember that Japanese people usually carry cash, and that the use of credit cards is not common, though there seem to be many, many loan-sharking companies, but I don't think people were paying cash for their real estate. Having said that, I would guess that a commercial real estate implosion was more influential there than a residential real estate implosion, since most Japanese families live in the same home with several generations of family, or they live in corporate owned condos. I'm assuming that the people with any savings there, are the older generations that spent lifetimes working in the public and/or private sector. Although I suspect that most younger people live paycheck to paycheck there in low-paying and part-time jobs now.

If anyone knows how their bank bailouts and our bank bailouts are/ were different, or why their bailouts are somehow not inflationary, I'd be interested to know. I can understand why they would not experience monetary inflation because they own their own debt, but I'm wondering why their bank bailouts/restructurings, haven't been inflationary. If their public debt is 200% of GDP due to bailouts, is this not inflationary because the bailout funds haven't entered the economy there because they haven't been loaned out? By the way, what does "monetizing" debt actually refer to? How is debt monetized so that it becomes inflationary?

[thunderdownunder]

Re: Japanese deflation & the Yen

GRG 55 is correct = Yen carry trade = Borrow at next to nothing and lend at margin.
Money flows to best return with regard to risk/ return model. It was a no brainer
Ken you also have a good point. The bailouts were different in that they "absorbed the losses" at no interest (non inflationary)
They never gave the banks a flood of money to be put into the system at margin.
The debt remains, however and will remain a stone anchor for a long time. They need inflation - but in a grave yard economy it remains a vain hope

[karim0028]

Re: Japanese deflation & the Yen

The debt remains, however and will remain a stone anchor for a long time. They need inflation - but in a grave yard economy it remains a vain hope

Wouldnt people just default on the debt that cant be repaid?

[karim0028]

Re: Japanese deflation & the Yen

I can understand why they would not experience monetary inflation because they own their own debt, but I'm wondering why their bank bailouts/restructurings, haven't been inflationary. If their public debt is 200% of GDP due to bailouts, is this not inflationary because the bailout funds haven't entered the economy there because they haven't been loaned out? By the way, what does "monetizing" debt actually refer to? How is debt monetized so that it becomes inflationary?

I am still trying to understand why they wouldnt/didnt experience monetary inflation... If you owe debt to yourself its still interest payments/diverted cash that have to be made....

[GRG55]

Re: Japanese deflation & the Yen

I ...As you know, the US now has a ZIRP and if anything the JPY has trended higher through its adoption. Obviously it was a somewhat popular strategy, but if the JPY carry trade was anywhere near as crowded as advertised I would think there would be some artifact in the price history to record its unwind.

John

There is. The deleveraging is particularly obvious from the onset of the first credit seize up problems in the summer of 2007. That the Yen appreciated while the US Fed was heading to ZIRP was the obvious & profitable trade if you believed that Yen carry trade was indeed for real...