Monday, June 04, 2007

The Unbearable Lightness of Being [YEN]

Milan Kundera struck a humanistic chord with his early novels though with all due respect to his early work that had an innovative edgeiness, I find his recent musings as redundant as Neil Young's croonings about missing his daughter who's grown up and gone away to college. I am not passing judgement on their recent works' artistic merit, only how it speaks to me, personally.

Since that epoch when both artists were in their prime, the Trade-weighted Foreign exchange value of the Japanese Yen has sympathetically followed suit, with a deterioration in value that mirrors the declining relevance of Mr Kundera and Mr Young's recent work.

Looking at the chart above, (provided through a keenly observant friend at UBS in London), our favorite currency unit of exchange, the whipping boy of the FX trade that we all love to hate, is now pushing on lower trade-weighted boundaries not seen since the Plaza Accord. By way of comparison, this is weaker than in the latter 80s when the US Administration encouraged Japan to undertake the most imprudent of expansionary monetary policies by aggressively cutting rates, causing the famous mother of all stock and real estate bubbles; weaker than the mid-90s post Rubin-dancing-on-Japan's-head collapse coincidental to their own banking implosion and the hieght of Rubinistic Strong Dollarism; and weaker than the late 90's downward spiral resulting from ZIRP (with a errr ummm not-so-small post-98 hiatus courtesy of LTCM).

All of this current weakness occurs amidst booming domestic real estate prices, robust rent and land-price increases; extremely low unemployment, fine Tankans, very respectable capex, still-buoyant stock prices, and a still-booming export trade. I know fiscal deficits remain large, and demographics are challenging, and I understand that these trends appear set to remain in the coming years. But in comparison to the mess in the USA, and the heavy-lifting being done by Europe (who faces many of teh same challenges as Japan), surely there is merit in arguments that Japan is NOT pulling its weight, or if one considers ZIRP and USD reserve accumulation to BE, in fact, pulling its weight, then would someone please ask them kindly just to "stop".

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