(All contect in these articles should be viewed as opinion by our AP's)
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by; Jeannette Rohn Showalter, CFA
22th February, 2012
The currency beauty queens of several months ago are not all today’s queens. The Yen was strong in 2011 when it was a haven in the peak of the Euro crisis during the summer and fall. But, the Yen is no longer queen of that diminished drama. For the past six trading sessions, the Yen has been going lower… to a seven month low against the US dollar.
Connecting the dots with currencies is not always easy to do or, if easy to do, any ever changing picture. In a Greek default, there could be more Yen demand but as if yesterday another bailout package was agreed for Greece. And the bigger news pushing the Yen lower is recent US economic statistics suggest a recovery is under way and so yields on US treasuries have risen, or US treasury prices have fallen. “With the U.S. economy rehabilitating, the trend in yields is up and there may be more upside” to the dollar against the yen, said Lauren Rosborough, a senior foreign-exchange strategist at Societe Generale SA in London. “When domestic investors in Japan can see an improving yield offshore, then they would be looking to sell out of yen and buy the dollar.” (Bloomberg News, February 22, 2012)
While these are some of today’s pressures on the Yen, there are longer term bearish pressures for Japan to face: serious deflation prospects: “BOJ Governor Masaaki Shirakawa has told Japanese lawmakers that policy makers set a price target to show the central bank’s resolve and it will take further steps to end deflation.” Japan’s deflation is now entering its 22 year and I think all have heard the BOJ refrain many times before. (Prior source)
Japan does not have much wiggle room; it has government debt at 226% of its GDP, (though lower if investments offset to create a net debt number.) The Japanese are largely internally financing their government debt (i.e. 90% bought within Japan). Its combined ( all sectors… public and private ) debt burden as a % of GDP grew from 387% in 1990 to recent level of 512%; at that seemingly bizarre ratio, Japan takes the prize as the most debt burdened country, followed by England at 507%. (“Debt and deleveraging; uneven progress on the path to growth”, January 2012; www.mckinsey.com/Insights/MGI/Research/Financial_Markets/Uneven_progress_on_the_path_to_growth)
As long as Japan is able to roll its existing debt or finance incremental debt, the issue is put on the back burner.
The Survival Plan and Currency Basket currently hold a short Yen position.
Japanese Yen Chart
Regards,
Jeannette Rohn Showalter, CFA
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239-571-8896
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