Here's What's Behind The Collapse Of The Japanese Yen — The Biggest Economic Story In The World

TBI ^ | 12-27-2012 | Joe Weisenthal

[blam]

Here's What's Behind The Collapse Of The Japanese Yen — The Biggest Economic Story In The World

Joe Weisenthal
Dec. 27, 2012, 7:26 PM

Earlier we joked that lost in all of the Fiscal Cliff shuffle was the fact that the yen has been getting clobbered.

SocGen's FX guru Kit Juckes jokingly responded that far from getting "lost" the yen carnage was actually the only game in town.

Indeed this is really the huge story in global markets right now. In addition to being a major shift in one of the world's biggest and strongest currencies, it affects all sorts of manufacturers who do business in yen, or compete with companies that do business in yen.

Here's a three-year chart of the CurrencyShares Japanese Yen Trust, an ETF that's designed to track the yen. As you can see, it's been collapsing, and is now at a level that hasn't been seen in over two years.

So what's causing the yen carnage?

There's actually no one thing.

But a few of them are:

-- Shinzo Abe: Japan's new Prime Minister (who took office yesterday) has pledged to force the Bank of Japan into ultra-easy monetary policy, and he's even favored bond purchases for the direct purpose of funding stimulus money.

-- Japan's trade situation also seems to be deteriorating. Whereas previously the country was running big, consistent trade surpluses, it's now in steady trade deficit.

-- The US economy is strengthening. This isn't about the yen, but it does help boost what the yen is being compared to, the dollar. A strengthening economy helps contribute to rising US interest rates, which will help the US dollar.

(snip)

[Reverend Wright]

hedge fund guy Kyle Bass believes the japanese yen drop is being driven by a sovereign debt crisis in that country

http://www.zerohedge.com/news/2012-11-20/kyle-bass-end-debt-super-cycle

[nfldgirl]

And to think that it was 320+ yen back in the wee early 70’s. Amazing!

[monocle]

Japan has the highest debt to GDP ratio of any country bar none. Japan’s debt to GDP ratio is about 2.33 to 1. A ratio above one is generally a cause of concern in the financial markets.

[LS]

Well, sorry, I'd like to think that the economy is languishng but that isn't what the data seems to be showing. Holiday sales were down slightly, but new home sales have rebounded, realtors I know are starting to do better, and any restaurant or mall you go to is full of customers. Dayton, a depressed town, has cranes up all over. I have raised this point about shoppers and restaurants now for two years and the only answer I get here is "credit cards." We'll, credit runs out and supposedly banks aren't lending, yet people keep spending. Yet there is no inflation.

China's manufacturing sector has slowed, Europe is a mess, and we're still the last place to go.

So, despite the debt and deficits, you aren't seeing the inflation that has been predicted fo SIX YEARS, nor are you seeing enough economic hardship that people would turn out the Dems. My conclusion has to be, then, that things aren't all that bad, and certainly not bad enough to spark widespread unrest. There is some venture capital for sure-fire projects, although high risk stuff is still tough to finance.

It's possible this is a lull before the taxamaggedon---but again we heard this for years now, that it's all "about to blow." So far, again aside from debt, no big indicators this is happening.

[LS]

Don’t think stocks are “crushed”-—they just haven’t moved for 3 years. We were at 14,000 under Bush, fell to 10,000, and ve hung in the 12,000 for a while. In a robust economy, we should be at 17,000-18,000 Dow.

[LS]

Japan has far mor serious problems than a falling yen or the BOJ. It’s population is aging faster than any in the world, Japanese youth are depressed and according to most sources and polls “without hope” for a better futur, and about 1% of young men are “shut ins” literally not leaving their rooms for YEARS. This is not a yen or trade problem.

[gusopol3]

Thanks I wondered how Joe Weisenthal suddenly became trustworthy

[existentially_kuffer]

Just another “unexpected” story from a so-called expert crap shoot at the local financial casino.

[erlayman]

The fundamental cause of deflation is a protracted downward trend in Japan’s GDP growth caused both by the decrease in the number of workers and declining productivity. They need a combination of approaches to end it: Monetary easing, a higher consumption tax, boosting domestic demand (especially among the elderly) bringing more old people and women into jobs to counter the decline in the working-age population, free trade, etc.