Monday, September 22, 2014

The Japanese are Positioning for Yen Endgame

The Ponzi goes on, and those aware of the Ponzi wonder when it will end. It is not just America, but the entire US monetary system. The reason why the financial crisis of 2008 was different from '80s and '90s crisis moments is that it was to the core of the system. The dollar and US economy was where the shock happened, not the periphery like Latin America or Southeast Asia. The loss of confidence in the system or even questioning the validity of the fiat dollar system would cause weaker partners to be affected earlier. Japan and the yen is one such partner. While many have bet against the yen and Japanese bonds and been burned, there are signs that the Japanese themselves are preparing for the endgame.

The Japanese had their forty-first straight month of trade deficits. This is the problem when a nation imports raw materials and energy and exports finished goods in a world of sluggish demand. The Japanese are one of the export dollar recyclers. They are not reliable anymore, which might be why tiny Belgium holds hundreds of billions of US Treasuries now. The Japanese are now moving to invest more abroad, but curiously, they are not investing in hot spots like China but instead in America. The Japanese are investing in US insurance companies as a proxy for investing directly in the US. They want to use insurance companies as a way to learn about the US market more before digging in deeper. This is beyond direct purchases of manufacturing firms and what not. They did this in the '80s when Japanese automakers partnered with US firms to learn the psychology of the US worker as they then invested in US sitused plants.

At the core of all of this is finding ways to earn non-yen denominated revenue. Currency diversification to prepare for a domestic shock. They are preparing for the devaluing of the yen, and they expect it to happen to the yen first and the dollar later. Many have bet against the yen and lost, including recently Kyle Bass, but if the Japanese themselves are starting to bail, the end must be approaching. It is an interesting island culture shaping up. Greying and shrinking population, growing robotics industry, worlds' largest creditor nation with trillions in net assets, "xenophobic" immigration policy, shrinking working population... it is like they are setting up an island of a homogenous, rentier class.


Dan said...

Is Japanese buying of American assets anything new? Japan buying up Manhattan was a story 20+ years ago, wasn't it?

Is there evidence that purchase of assets in America is reaching new highs?

I am not convinced that Japan is in such long term trouble compared to other countries. Since they are decidedly *not* becoming a third world country demographically, they will remain a technology and manufacturing powerhouse for generations to come I think. The giant economic tsunami (China billion-plus becoming manufacturing-oriented and capitalistic) has already hit them full on, and they lived (admittedly with some bruises).

The countries presently surging demographically are not ones known for technological or manufacturing prowess, to say the least. In other words, I would expect see lots of technology demand and little technology supply from these demographic surgers.

Given that, Japan would appear well-positioned.

peterike said...

I wish they could export their immigration policy to America. I wonder what the Japs think when they see how America and Europe are simply standing idly by while the vermin of the world scurry into our nations by the millions.

I'll tell you this much, culturally Japan is way better positioned to handle a collapsing world than America. They may finally prove that the pernicious myth of "growth at all costs" is just that: a pernicious myth. Japan had about 30 million fewer people in 1960. They may get there again, and good for them (and good for the fish population).

Son of Brock Landers said...

Both good comments. Eventually the remaining Japanese will be theones reproducing at replacement ratio. They will be better prepared for a reset even if energy importing is a problem.

As far as purchases, '80s buys were trophy real estate.

Portlander said...

I wonder what the Japs think when they see how America and Europe are simply standing idly by while the vermin of the world scurry into our nations by the millions.

They think we're idiots whose luck wrt natural resource wealth has made us lazy and arrogant. Once the last of our inherited wealth is squandered, much like the Prodigal Son we will try returning to our former glory. Unlike the Prodigal Son, there will be no home and no wealthy father to return to.

But they've always thought that. So, nothing different over about a century, give or take.

eah said...

... in a world of sluggish demand.

I don't know how "sluggish" demand has really been in the last few years.

Certainly a few marquee Japanese companies -- eg Sony -- have experienced big problems. But perhaps the main issue for Japan Inc in recent years has been the rise of China as an exporter of manufactured goods.

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