I hold MJFOX, PRJPX, OAKIX and wonder what impact will the Japanese manipulation of the Yen have on these funds going forward. A very weak Yen might trigger conservative Japanese investors to buy Japanese equities and jump start their economy.
"Japan looks set to depress the value of the yen to boost trade – how China must brace itself for the impact
Japan is on an unsustainable path of a strong yen and deflation. The unprofitability of Japan's major exporters and emerging trade deficits suggest that the end of this path is in sight. The transition from a strong to weak yen will likely be abrupt, involving a sudden and big devaluation of 30 to 40 percent. It will be a big shock to Japan's neighbors and its distant competitors like Germany. The yen's devaluation in 1996 was a main factor in triggering the Asian Financial Crisis. Japan's neighbors must have a strong banking system to withstand a bigger devaluation of the yen. "
"The Bank of Japan is trying to weaken the yen through expanding its balance sheet. It has an asset purchase program of 65 trillion yen and a lending program of 5.5 trillion yen. The two are equivalent to 15 percent of GDP, comparable to what the Fed or European Central Bank have done. The effectiveness is limited so far. Because Japanese businesses, households and investors believe in a strong yen, the printed yen largely stays in the country and just slows down money velocity. The U.S. dollar has risen 10 percent against the yen from last year's bottom. This is probably due to the financial market upgrading its view of the U.S. economy rather than the BoJ's action."
Excerpt from Articles by Andy Xie:
The Yen's Looming Day of Reckoning
http://english.caixin.com/2012-03-23/100372177.htmlSmashing the yen to save Japan
http://www.businessspectator.com.au/bs.nsf/Article/Japan-China-yen-economy-Nikkei-Morgan-Stanley-debt-pd20120327-SRTJW?opendocument&src=rss
Comments
I don't know; it's sad but what's the positive catalyst for Japan aside from the possibility that they very well may do a sudden and large devaluation of their currency? What happened in Japan about a year ago was tragic and unfortunate, and the more I read about the day-to-day, it unfortunately doesn't sound very good. "Smashing the currency" is going to meet with competitive responses.
If the yen was largely devalued, there would be a significant situation in Asia (and Australia) but the responses would come from everywhere and the situation could overshadow whatever short-term benefits Japan sees. What happens to the Japanese people and their gigantic holding of JGB's (although less and less in an aging population) if the currency was devalued? What happened if Japanese interest rates went up significantly? Etc etc etc....
The Japanese situation isn't good, and it could be far longer than anyone might expect, but I don't think the situation ends well. Has there ever been a currency where devaluation over time hasn't eventually reached an endpoint? The average life expectancy of a currency is 27 years. The British Pound has lasted far longer than that, but it's something like 0.5% of it's original value. I'm not saying that we should go on a gold standard or anything, just the reality that eventually the devaluation of a currency reaches an endpoint. Diminishing returns. What once took millions to prop up takes billions, then trillions. It doesn't end well, but the nature of how it ends is the question.
Elsewhere, I think the Iran situation could turn South quickly, as well, and Jim Sinclair provided an excellent discussion on KWN of how trying to shut Iran out of the global economy resulted in barter transactions with countries like China and India in currencies or things other than the dollar for oil, which would have otherwise never happened.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/3/27_Jim_Sinclair.html
"“Jim Sinclair has pointed out what is taking place with the SWIFT system. I would just like to add that SWIFT has now become a weapon in the currency wars and as Sinclair correctly stated, unfortunately the United States is now threatening other countries. We are saying if they do not do what we want, we will cut them off from SWIFT, which will effectively shut down their economy."
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/3/27_Countries_Swapping_Billions_&_Transferring_Oil_Ahead_of_War.html
As for Japan -
From Kyle Bass:
http://www.cushcapital.com/newsletter_html.php?id=28
“The number of Japanese without job security or social security entitlement – has mushroomed to 20 million or 34% of the labour force; suicide is now the leading cause of death among young men aged 20-44; 56% of 15-34 year olds need outside supplements to their salaries to cover mere living expenses. The Japanese government itself no longer manages to cover its bare necessities with revenues and must borrow just to cover debt service, social security and education. The severe decline in the population in addition to Japanese resistance to large scale immigration combine to form a volatile catalyst for a toxic bond crisis that could very likely be the largest the world has ever witnessed.”
And... “Japan is a disease. They're like a bug searching for a windshield. It's a dying country. Nominal GDP is where it was 17 years ago. Plus, the population is very old. When they stop funding their own debt [as a result of retirees ceasing to save], it's going to get ugly. You're going to see the yen valued against the dollar go to 100, and then 120, and then 250, 300. They won't care how low it goes. They're just going to print money. I think Japan will implode within the next two to three years. It will not be good for the world.” – John Mauldin
I'm not sure what the situation is going to be like in terms of individual investors' ability or interest in Japan of buying stocks (see the first Bass paragraph above.)
The government is buying ETFs and other things, though. The retail investor in this country will not likely participate to the same degree for quite some time as it did 5+ years ago. I think a main concern is this: "The Japanese population, aging and shrinking, is saving less and less. The biggest holders of Japanese government bonds -- Japanese government pension plans -- have recently become net sellers. The country has run through five finance ministers in the past two years. We are going into a year in which the government has 213 Trillion Yen of bonds to roll over. "
Oh, and this:
http://www.bloomberg.com/news/2011-10-31/boj-losses-exceed-281m-from-buying-etfs.html
"The Bank of Japan has lost as much as 22.4 billion yen ($281.7 million) purchasing exchange-traded funds as the Topix Index approaches a 27-year low."
"The central bank expanded the program last week by 5 trillion yen after the country’s currency reached a postwar record against the dollar, threatening the export-led economy."
"“This is not what a central bank should be doing,” said Masaaki Kanno, the Bank of Japan’s former chief foreign-exchange dealer and now chief Japan economist at JPMorgan Chase & Co., referring to the ETF purchases. “The program started in an emergency, and it’s been snowballing.”
Extreme outcomes are unlikely but, as you point out, man and mother nature are both capable of unleashing such things and when they happen they often happen very quickly.
Thanks for your links and counter points.
As for Japan, there's also this this morning - Household holdings of JGB's at 7yr low.
http://www.zerohedge.com/news/mrs-watanabe-prepares-blow-jgb-bubble-household-holdings-japanese-bonds-slide-lowest-7-years
"There is a simple solution:
Vice Finance Minister Fumihiko Igarashi said yesterday it would be better if more overseas investors held Japan’s government bonds to ease the risk of “one-sided” selling.
And foreigners will be delighted to buy JGBs.... just hike interest rates from a meaningless 1% to at least 2% to match the US 10 year, and make JGB's attractive. Oh wait, there is a problem with that. As Andy Xie pointed out: "If the bond yield rises to 2 percent, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen.""