Japan in rough situation
twitter.com/DeutscheBank/status/693117217886572550
In summary, Japanese economy is highly dependent on exports. Recently, Japanese yen has appreciated very strongly against dollar. I think that happened so quickly and unexpectedly that many of those Japanese firms and investors did not react fast and early enough.
This could implicate large losses in margin revenues and more selling of assets. This year NIKKEI has already fallen about 20% and I think that it will continue.
Why is that?
Simply, because of dollar is likely decline further. Market had huge expectations for long time about FED raising rates. Now they're beginning to realize that FED is not going to raise interest rates at least not so frequently as they expected.
I think we are going trough same kind of situation that we saw in 1971 due to "Nixon shock". At that time the President decided to break up Bretton Woods. As a result at that time, dollar plunged also. Devaluation of dollar protects US economy. It makes US exports less expensive and foreign goods and services more expensive. Hence, it helps to create demand to US goods and services and create more new jobs. And that is exactly what US needs.
By the way, in 1971 due to Nixon shock, USD lost 45% of its value against Japanese Yen.
Finally, it's easy to understand that Japan faces a tough situation. Will they do more quantitative easing to save their stock market or do more FX intervention? I think that doing only one or the other is not enough. Another question is that do they have resources to do the both at the same time or will the Japanese economy plunge again?
Edit: the fib is little bit f- up but anyway...
In summary, Japanese economy is highly dependent on exports. Recently, Japanese yen has appreciated very strongly against dollar. I think that happened so quickly and unexpectedly that many of those Japanese firms and investors did not react fast and early enough.
This could implicate large losses in margin revenues and more selling of assets. This year NIKKEI has already fallen about 20% and I think that it will continue.
Why is that?
Simply, because of dollar is likely decline further. Market had huge expectations for long time about FED raising rates. Now they're beginning to realize that FED is not going to raise interest rates at least not so frequently as they expected.
I think we are going trough same kind of situation that we saw in 1971 due to "Nixon shock". At that time the President decided to break up Bretton Woods. As a result at that time, dollar plunged also. Devaluation of dollar protects US economy. It makes US exports less expensive and foreign goods and services more expensive. Hence, it helps to create demand to US goods and services and create more new jobs. And that is exactly what US needs.
By the way, in 1971 due to Nixon shock, USD lost 45% of its value against Japanese Yen.
Finally, it's easy to understand that Japan faces a tough situation. Will they do more quantitative easing to save their stock market or do more FX intervention? I think that doing only one or the other is not enough. Another question is that do they have resources to do the both at the same time or will the Japanese economy plunge again?
Edit: the fib is little bit f- up but anyway...
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