Thursday, 4 April 2013

Japan Jumps on Easing

Well the Japanese are going to follow the US and go mega-all out on easing of their own.  Its a big change and it can't be emphasized how much of a change it is from a country that is generally very risk adverse and conservative.  Having lived in Japan for a short time, I wish them luck in getting their monetary policy better controlled.

To be honest, I'm not sure where it would really go.  Deflation is definitely a bad thing but almost somewhat inevitable for Japan.  A shrinking population, and an even faster aging population (old people don't spend much) will mean natural deflation.  Attempting to fight that is going to be tough.

On the bright side, their easing will help the currency.  After a long while in the 70s, being at the mid 90s is a big deal.  I've said before that if they don't make a big change in their currency rates, their manufacturing industry will get gutted.  This may help stop or at least slow that down.

As for their deficit, 200% debt as % of GDP is in no way sustainable.  They been able to get away with it partly due to their extraordinarily low interest rates.  Fighting deflation and upping inflation seems to be somewhat contrary to that idea I must admit.  Will have to wait to see what happens with this.

So how is the yen currency today?  Up (or down depending on your perspective) a ton.  Is the saying "don't fight the fed" ringing any bells?

Funnily enough, while the EWJ Japan ETF is up 3.5% tonight, the other asian indices like Hong Kong and others are down by a bunch.  Down almost 2% at the moment.

What's good for the goose is not always good for the gander.  Competition from a rebounding Japan (due to exchange currency impact) will mean trouble for South Korea and Taiwan and China as they become more competitive price wise.

This brings up an interesting question, how does this impact the US?  Is it positive?  Negative?  We don't exactly compete with Japan that much in this particular exporting segment really.  A stronger trading partner is always good but not essential.  Companies that sell to the Japanese market will benefit from the potential growth but lose out on the exchange rate of their profits.  US manufacturing will take a slight hit as Japanese imports become more competitive to the US consumer.  So overall, maybe a slight negative I would guess.

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