Re: USDJPY
My limited understanding is USA will try and get the 800B bailout money from Japan which should support the Yen.
From Fat Prophets:
Feb. 16 (Bloomberg) -- Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, amid an unprecedented collapse in exports and production.
Gross domestic product fell for a third straight quarter in the three months ended Dec. 31, the Cabinet Office said today in Tokyo. The median estimate of 26 economists surveyed by Bloomberg News was for an 11.6 percent contraction.
Exports plunged a record 13.9 percent from the third quarter as global demand for Corolla cars and Bravia televisions evaporated. Toyota Motor Corp., Sony Corp. and Hitachi Ltd. -- all of which are forecasting losses -- are firing thousands of workers, heightening the risk a slump in household spending will prolong the recession.
Japan’s post WWII renaissance has been built around supplying the US consumer with capital goods, cars and electronics. This has led to Japan developing a world class export sector, which has in turn helped the country to amass huge amounts of capital, the result of persistent trade surpluses.
Now, because of Japan’s strong creditor nation status, a strengthening yen, combined with a major drop in US consumption, is wreaking havoc on the export sector. And unfortunately, Japan’s domestic sector is not healthy enough to even partially offset the export led weakness.
On the surface, it is easy to blame Japan’s woes on the global recession. But the underlying problem is the US dollar as the world’s reserve currency. Dollar hegemony has allowed global trade imbalances to get completely out of hand. For years, Japan has underwritten US growth by buying treasury bonds and until recently overtaken by China, was the world’s largest owner of US
treasuries.
Given the problems in the export sector, we would not be surprised to see the Japanese once again come to the aid of the US by buying up hundreds of billions worth of treasuries. Japan would have to print and then sell yen to buy dollars, which would have the effect of improving the dollar/yen exchange rate in favour of Japan’s exporters.
The US obviously does not have enough domestic savings to finance its upcoming mega deficits. So having the Japanese to help out would be welcomed. This of course would prolong and extend the imbalances, so would only be a short term fix.
It is worth remembering that under the classical gold standard imbalances could not build in the system, and any adjustments were usually short - albeit violent. Nation’s could not run enduring deficits because they would run out of gold, a sign that their credit had also run out. Dollar hegemony provides the US with unending credit, as long as faith remains in the integrity of the currency. This system has ‘worked’ for the past 35 years, but we don’t think it will, or can, continue.