Wednesday, July 6, 2016

Japan and the Yen

First off, don't get me wrong, I love Japan. I went there for the first time on a solo holiday earlier this year and it was amazing. The people are friendly to (non-China) tourists, the culture is unique and distinct and the country and city works pretty amazingly.

As much as I enjoy Japan, I can't help but cringe at it implodes itself financially.

Japan has a MASSIVE problem with debt, which is no wonder why they have been slipping in credit worthiness. Their only 2 options are inflating away their debt (through inflation or currency devaluation) and outright default.

Which is batshit insane because their policy works directly opposite from each other. To have inflation and a falling currency is desirable, but they want rates low. Think about that for more than 5 seconds and you realize that it just doesn't make sense.

They have publicly forced the hand of lower rates by going officially negative. The rest of the curve has followed suit.

Yet the government still engages in stimulation to boost up asset prices, in what I would assume as an attempt to place a put on risky assets and get people to stop sitting on their money and rotate out of bonds. And also to flood the markets with cash and devalue the Yen. J-REITs are at the point of ridiculous valuations now.

Which would then mean that... rates would rise? And they would screw up their debt repayments.

It all doesn't make sense to me. It's crazy.

However, I have made a feeble attempt to make sense to all this madness previously, and my conclusion is that simply the Yen would HAVE to appreciate in the near term, while its long term outlook is very unpromising. I wouldn't be surprised that by the time the global bloodbath is over (which apparently nobody else seems to think so, except me), the Yen could possibly go back into the 70s, and which point, it would make a fantastic short while it slowly dissolves into the oblivion.

On the bright side, it seems that I picked pretty much one of the best times ever to go to Japan for a holiday. Compared to then, I'd probably be having to pay 15% more (looking at the SGD/JPY). As much as I'd like to go back to Japan again to explore other areas, who knows when the currency would be favourable again and entice me to go!

1 comment:

  1. unless they charge fiscally for undeployed withholding of yen, I suspect yen will appreciate somemore and usdjpy can continue to be shorted. when u see gold and usd rise in tandem, something somewhere is wrong. granted it IS the earnings season in US.

    which suggests a few things for gold and the sp500.


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