Posted on 03/17/2011 4:56:32 PM PDT by bruinbirdman
Japan is in imminent danger of a credit-crunch with global implications unless the authorities stabilise Tokyo's stockmarket and take overwhelming action to stop the yen exploding to record levels.
Akito Fukanaga from RBS warned of a "financial shock" as banks and insurers comes under strain, and investors focus on the nexus of structured products linked to the yen.
"Preventive measures on the financial front are urgently needed. Sentiment has declined severely and there are concerns over capital erosion at financial institutions. Lower stock prices and yen appreciation are on the verge of triggering a credit crunch," he said.
The yen's violent move late Wednesday to a record ¥76 against the dollar - smashing historic lines of resistance - has gone far beyond levels that automatically set off secondary effects through derivative contracts.
The Topix index has regained some ground after crashing to 782 but is still at levels that leave Japan's top three banks barely above water on $1 trillion of equity holdings. The risk is that they will curtail lending as a precaution.
The Bank of Japan has already injected ¥15 trillion (£117bn) in liquidity and pledge to boost quantitative easing to ¥40 if necessary, but even this may not be enough.
The G7 finance ministers were to hold a conference call last night to discuss possible intervention to stabilize the yen, perhaps at bearable levels of ¥80 to the dollar. But there seems little consensus yet on the scale of action needed. Dow Jones cited a Japanese official pledging "battle" to cap yen strength.
The channel of contagion from Japan to the rest of the world is finance, not trade, just as it was during the US sub-prime crisis. The trigger mechanism is the rising yen, which eats into profits and hits share
(Excerpt) Read more at telegraph.co.uk ...
Evans-Pritchard is only slightly less loony than Paul Krugman.
But it is sort of like comparing the intelligence of Barbara Boxer and Patrica Bin Murray, if you catch my drift.
Worse...
Way worse...
Keep telling yourself that...
The US is not Japan.
Japanese save their money and hold a lot of their own debt.
Americans do not save their money and foreign nations hold much of our debt. Current US debt is simply being purchased with printed dollars - QE2...
I am going to retract my "trifle melodramatic" aspersion.
The last few hours have shown that AEP's characterizations were right on target with the dramatic intervention by several central banks (see this morning's WSJ front page story Nations Act to Put Brakes on Yen's Rise; it's also the top story on the Nikkei.)
I had earlier this week remarked that it would take the Fed acting in concert with the BOJ to mitigate the yen moves, but in fact, it ended up that the ECB, the Bank of England, and even the Canadians also coordinated in this intervention.
I still don't agree with AEP on the possibilities of an actual yen credit crunch (I rate the chances of such as zero), but the historical and analytical components of his article are right on target.
So all the Japanese keep their savings in dollars and Euro? Why? Why not keep your money in Yen? It is a strong currency? This theory is crazy. The Japanese have a huge savings rate and they have plenty of money at home. I think the Yen is under attack by those who want Japan to crumble.
If Japan dumps bonds em mass, our interest rates would soar. I'm not seeing that today in the market.
Maybe they are only dumping Euro bonds today. Where is the uptick in interest rates from a massive bond dump? I'm not seeing it on my screen.
That's true. The U.S. economy is stronger than Japan's.
You DO realize that Japan's debt is 200% of their GDP, don't you?
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