Japan Reserves On Edge of Collapse

PRESS RELEASE
Citizens for Corporate Accountability

- Japan does not have several months foreign reserve holdings left for US assets, as previously thought, because $650 billion in holdings--almost the entire amount--is already used up.
- Since Japan has run out of holdings, it is borrowing against itself using US bonds.


(SEATTLE) 02/17/04 - Figures outlined in a foreign news release concerning Japan's foreign exchange situation paint a picture that is far worse than headlines suggest. The news release, from the AFP--which apparently wasn't broadcast widely in the US news--has since been deleted from the web, but is dated January 2004(1). Specifically, the release shows that Japan has already exhausted its resources to buy US dollar assets.

Japan has been buying US dollar assets to offset currency effects due to problems in the US economy, at a rate never before seen. This has been holding up US credit markets, and keeping US interest rates low, in a new and unusual way. This action is said to be unsustainable, because it represents a significant portion of Japan's total gross domestic product ("GDP").

In the release, the Japan Finance Ministry announced a "deal to sell US bonds to the Bank of Japan" to raise an amount of 100 billion dollars US. However, the release says the Finance Ministry has to buy the same back after three months. This short-term action is apparently necessary, because the release indicates almost all of Japan's foreign exchange reserves are already in foreign currencies--leaving none left to invest in US assets ("foreign currencies accounted for 652.8 billion dollars"--out of 673.5 billion total.)

At the most recent rate, the additional 100 billion dollars would last a few months, at best. And there is a question as to whether the 100 billion dollars in US bonds might be unexpectedly sold. The news is significant because it suggests serious US credit problems are closer than previously thought, and the US Federal Reserve may no longer have the ability to keep US interest rates low.

###

Footnotes:

(1) "Japan's Foreign Reserves Hit Record", AFP, Friday January 9, 11:59, Yahoo!: Error 404 The requested URL could not be found.

[bpilgrim]

1. link?

please :hi:

peace

3. There is a link to my webpage

The foreign story disappeared from the web

[bpilgrim]

8. thanks

was so small i thought it was unreleated, D'oh!

peace

[UpInArms]

never forget google cache

http://216.239.41.104/search?q=cache:OGiHOZNE7MgJ:asia.news.yahoo.com/040109/afp/040109035930business.html+%22deal+to+sell+US+bonds+to+the+Bank+of+Japan%22&hl=en&ie=UTF-8

Friday January 9, 11:59 AM

Japan's foreign reserves hit record after continued forex intervention

TOKYO, (AFP) - Japan's foreign exchange reserves, the world's largest, hit a record high at the end of 2003 as it continued to buy dollars to cap the rising yen and promised more funds for such intervention.

Japan's foreign exchange reserves rose 29 billion dollars to 673.5 billion dollars at the end of December for a fourth consecutive monthly record, the finance ministry said.

"The biggest reason for the gain was (currency) market intervention," said ministry official Hiroko Inaoka.

...more...

17. Good point--still in cache!

thanks!

[spinbaby]

2. What does this mean?

Excuse my ignorance, but I have no idea what the significance of this is.

[redqueen]

4. don't ask

all I have to say is 'holy crap'

[bpilgrim]

5. if japan no longer has money to help finance our debt

our gov will be FORCED to find alternatives HIGHER INTEREST but it also means NO MONEY for gov programs as well.

peace

[redqueen]

9. Care to think about what this might do to the housing market?

This is enormous. I hope they scrubbed it because it's no longer a problem, but my gut says otherwise.

[bpilgrim]

13. well... it would prevent a LOT of folks from being able to afford houses

at current prices which will probably drive them back down

but i am just a regular joe when it comes to ecconomics and really don't know for sure but it certainly seems very worrysome as countries can behave very rash in economic crisis/strain.

:shrug:

peace

[redqueen]

14. That wouldn't be so bad

I am more worried about the bubble bursting and values plummeting. Don't want to see a repeat of the 80's yet have been expecting it since last summer. Guess I'm just a born worrywart. :)

[bpilgrim]

16. the 80's may pale

the japanese economy was bomming then :scared:

peace

[54anickel]

23. I'll take the 80s over the 30s anyday! n/t

[Zhade]

32. We're headed for a situation that will make the 30s look like a cakewalk.

Combine the New Depression with perpetual war and Peak Oil, and now you're talking about OH MY GOD, WE'RE FUCKED.

[54anickel]

33. Oh, there's a cheery and inspiring thought...

NOT :evilgrin: :hi:

[aquart]

60. Afford? Since bankrupt people MUST sell, it will CRASH the housing market.

Homes now valued over half a million will sell for half of that or less.

Oh, and that will downgrade local real estate evaluations meaning less revenues.

Did I mention that the housing market has been propping up our economy?

Gonna be fun, folks.

Thanks a lot, George.

[Burma Jones]

6. It means the bill's coming due sooner than later

The Republicans HAVE to rid themselves of these stupid fundies and neocons that think deficits don't matter.

[ScotTissue]

7. The proper response is mindless panic.

"Excuse my ignorance, but I have no idea what the significance of this is."

Me either.

Run away! Run away!

[Ganja Ninja]

12. I think what it means is that Bush Co is triggering...

the currency collapse that Clinton managed to avoid.

[Mithras61]

10. It means Japan won't be able

to continue to prop up the dollar in the currency markets. Currency values for the US Dollar: 106 Yen, .52 British Pounds (BP= 1.90 USD), and .78 Euro (Euro = 1.28 USD). If the Japanese stop buying USD, then the value will fall even further because of reduced demand. This means countries have LESS interest in having their cash reserves in dollars, and more interest in having them in more stable currencies (like the Euro), and our economy goes BOOM! FLUSH!

[54anickel]

27. Nah, Greenspin and Snow say this is a good thing. Just look at the

Stock Market today. They are taking the drop in the buck as a good thing! :eyes:

Edit to add the morning comments from yahoo finance:
11:30AM : There have been no signs of sellers trying to take the lead here, and the indices are drifting slightly higher...the dollar has weakened further against the Euro today, which rather than being seen as a negative for stocks, is starting to be recognized for the competitive advantages it produces for US exports...a weaker dollar also increases the value of overseas profits when translated back into dollars...the dollar is at 1.2828 against the Euro...NYSE Adv/Dec 2280/842, Nasdaq Adv/Dec 1920/1051

28. Don't we know that already?

"Nothing is a negative"

It is all positive.

[Fargin Ice Hole]

39. Hey... But what a great time......

...to Spend 1 Trillion to switch over the Social Security into such a safe alternative!!!!!:crazy:

[loudnclear]

24. Remember we almost forced Japan to go military once again.

Well trained, well armed, and desparate people ...will this come back to haunt us?

[Art_from_Ark]

51. Not sure what you are referring to here

"Remember we almost forced Japan to go military once again"

Are you referring to the dispatch of Japanese self-defense forces to Iraq that was engineered by the US? The advance force has already arrived in Iraq.

"Well trained, well armed, and desparate people..."
Who are you referring to? The Japanese? The Japanese defense forces, which are strictly voluntary, have far fewer members than the US military. No doubt, however, that it is well-armed. As far as being a "desperate people", I would not call the Japanese that-- certainly not at this stage, at least.

[salin]

45. It means that W will ask for..... More Tax Cuts!

seems to be his one-trick response to all things economic.

[CaptainClark23]

11. Here we go....

and POP! goes the bubble.

Got gold?

[redqueen]

15. My uncle says silver is better

Wish I'd have listened!

[CaptainClark23]

21. Hi Ho Silver, awaaaaaay

"Got Gold?" just seems catchier than "Got Silver?"

I agree with your Uncle. I've been picking up mostly silver for a few months now, and a little bit of gold.

Its not too late, though, by any means. Silver is still completely undervalued, and when/if TSHTF, thats gonna change in a hurry.

[54anickel]

25. Not too late Silver is still cheap. If you still want to take his advice

that is.

[Art_from_Ark]

52. Silver vs. Gold

At one time in the not too distant past, silver was trading at a ratio of 16-1 for gold. Now the ratio is more like 70-1. That means that silver's buying power in relation to gold has become only 1/4 of what it once was. And while silver may be the "poor man's gold", it has been in the doldrums since 1982, except for a couple of times when news of hot shot investors getting involved with silver (like now) caused the price to rise. And every time there's a silver price rise, Mexico cranks up production.

18. You guys, this is bad but

Not the end of the world.

My web site has much other useful and related information on it.

[bpilgrim]

19. is there an executive summary somewhere?

thanks :hi:

peace

20. Executive summary

Japan has been dumping its savings into the US economy in order to prop itself, its currency, and the US up.

This has led to a housing bubble, and stock market bubble.

The Japan money ran out in January. They can't keep it up so they are borrowing against themselves. at a rate which is impossible to hold up.

The bubble only keeps on going so long as the Japan self-borrowing does.

But in a month or less, they could sell US bonds! That would make the whole thing come down fast.

Shortened version:
"OH shit"

[bpilgrim]

22. thanks

japan's economy has been flat for a decade at least are you thinking they - nikke - may be getting ready to collapse, sounds like it... the floor seems to be around 10k when it starts getting below that i'll start getting really nervous.

:hi:

peace

[Art_from_Ark]

56. About the Nikkei

I remember hearing some businessmen a few years ago warn that we should worry if it dipped below 14,000! Of course, it fell far below that, even reaching down into the 7000's. And it's only been recently that it's bobbed above 10,000. So no one that I know here in Japan is going to panic if the Nikkei dips back down into four-digit land.

59. I'd be more worried about the DOW

Then the Nikkei

[Art_from_Ark]

65. If Japan dumps its savings into the US economy, it won't prop up the yen

If Japan wanted to prop up the yen, all it would have to do is stop buying dollars.

But you do have a point in that Japan cannot afford a US market that is too weak, given that 30% of its exports are destined for the US.

[54anickel]

26. Not the end of the world - You forget who's still in charge at the WH?

[Mithras61]

29. Well, it looks like the Dollar/Yen exchange rate

is staying stable at 106 Yen/Dollar, but the Euro/Dollar exchange rate bumped from 1.2828 Dollar/Euro to 1.2834 Dollar/Euro. I wonder how much longer until the meltdown in USD?

[muriel_volestrangler]

30. Why is this Late Breaking News?

The news story is over a month old.

Can an economist comment on whether the idea of a 'collapse' is right? Since Japan continues to have a trade surplus, I would have thought it can quite easily sustain a record amount of foreign currenct reserves.

35. The surplus is only about 10bil month/best

The story never made the US news. It was never explained to citizens.

Also, it is a press release from a US news organization, Citizens for Corporate Accountability. So it is not a month old.

I already checked out the surplus factor, and it is 10 bil/mo at its best. Clearly, if they are borrowing from themselves, their is a problem.

I updated the article to allude to Greenspan's warning related to "near-term risk"--exactly what he said to Congress.

[muriel_volestrangler]

37. Sorry, I thought Citizens for Corporate Accountability

was your website. Who are they?

Why would their reserves collapse if they stopped buying dollars?

40. "Collapse" et. al

Stated simply:

Japan is really in a bind because so much of reserves is in dollar assets, which they themselves are holding up, but they have run out of reserves to further this cycle.

More specifically:

The juggling act with the 100billion in US bonds in Japan is telling, to say the least.

Let's say they had to issue Japanese bonds in that amount to pay for the lent US bonds...that would trash a lot of things! Or maybe they would sell the dollar to buy the bonds back? That would trash a lot of things.

Or they could borrow against more US bonds.

Trash or trash, or delay trash. Take your pick.

Right now you have got 100b in US debt hanging in limbo, and the worlds largest two economies juggling, and running a combined defict of 1.5 trillion, with interest rates at near zero.

And all this being spent but no workers in the US is generating incomes to pay for it all.

It can't last long.

As for Citizens for Corporate Accountability, it is a real organization run by me. I started it after I got Bev Harris and David Dill started on the "Black Box Voting" issue, which is now famous.

41. Kick

One for Bev

[muriel_volestrangler]

49. maybe a more accurate title would be

"Japan's support of dollar is unsustainable"

The only way for the reserves to collapse is if the dollar itself collapses, since that's what they're mostly denominated in.

50. Chicken or egg

If they run out of Yen reserves to buy dollars, they will "collapse" in exactly that way (dollar crash). The math says they are running out.

But if I want to buy dollars, and I cannot (apart from the values of dollar/yen), I am also "collapsed" in my buying binge.

Semantically "on the edge of collapse" is the same as "unsustainable"

If you are running faster than you should, you collapse.

SO the title is proper.

[Art_from_Ark]

57. I disagree with your premise

Japan is buying up dollars at low rates. Most of the raw materials, including oil, that Japan imports, are valued in dollars. Thus, the cheap dollars can be used to buy fixed-price, dollar-based resources for less in yen terms.

I also aregee with the previous poster who complained about the headline. It's not Japan's reserves that are going to collapse-- the issue here is that the current level of buying is not sustainable.

58. U prefer "Unsustainable, and showing signs of collapse"?

Its a little more complicated than that. And I don't think there is some magic oil cycle there which suddenly showed up. No, it is the US debt market where the money ends up. Besides, OIL is no deal when bought in dollars these days!

In short, US Bonds. Just like the stories say I have linked in. How could japan sell any bonds, it would be unheard of?

If you know anything about the bond market these days, it is Japan who owns the whole damn thing, more or less. A reversal to sell bonds and buy anything with those dollars (such as oil) would cause a collapse.

WHY do you think Japan did not sell the bonds on the open market, HUH? (light goes on?--it would cause a collapse)

And surely, Japan is on the edge of collapse if it has no further funds allocated for dollar buys--which is the case.

Finally, at present, there is no specification as to how they are going to PAY BACK the 100 billion for the bonds!

...100B US bonds floating in limbo. Another sign of being on the edge of collapse. Floating, nebulous, debt.

So I agree the scenario is unsustainable, but is showing signs of collapse as well.

But you are FREE to use the PC term "unsustainable", particularly if you are Japanese.

How about "unsustaiable, and showing signs of collapse" for a title(toooooo long)?

I guess I can't please everyone.

[Art_from_Ark]

64. I'm not Japanese, just a long-time resident

Very long-time resident. And I've seen currency crises before. Remember when the dollar went all the way down to 78 yen? That was in 1994. Then 4 years later, the dollar had shot up to 143 yen. In the interim, the exchange rate was bouncing like a superball.

The average yen/dollar rate was 109 for 2002. The previous year, it was 121. The dollar/yen market is just a big playground to traders and manipulators. Even if Japan stops buying dollars, it won't necessarily spell disaster.

As for not selling the bonds in the open market, I really don't know what you mean. I could easily go to my bank tomorrow and buy a 1 month or 3 month US dollar bond. The Japanese government offers yen-denominated bonds to individuals through the post office every June and December.

Finally, I want to reiterate that Japan buys a lot of products, particularly raw materials, that are priced in dollars. Thus, it would make sense to load up on dollars when the dollar is weak. Trading partners aren't going to suddenly stop accepting dollars.

However, if Bu$h gets another term, then all bets are off.

68. 100 billion dollars in bonds per month--at the post office???

70-100bill US in bonds per month--at the post office???

Nay, the floated these bonds to the bank of Japan!!!

I'm sure your right, but we are talking about huge unsustainable amounts that no Japanese grannies can afford.

[Art_from_Ark]

71. That $100 billion/month figure you cite is Japan's national budget

which is funded by bond sales and TAX money-- including the 5% national sales tax, which is levied on almost everything that is purchased. Revenues are also generated from highway tolls and car and gasoline taxes; income tax; revenue stamps; tariffs; user fees; national health insurance premiums: and a host of other means. And grannies aren't the only ones buying bonds-- virtually every family has money in the postal savings system, and most of these accounts have a significant balance (by American standards).

As for Japanese purchases of US debt, the government spent 20 trillion yen ($200 billion+) last year on Treasuries. Earlier this year, the Japanese government sold 5 trillion yen worth (about $50 billion) of US debt to the Bank of Japan in order to procure funds to intervene in the currency market to sell yen, the first time it had taken these measures in 17 years and the largest amount ever dedicated to such an endeavor.

http://www.google.co.jp/search?q=cache:hrynTYerVNQJ:www.kahoku.co.jp/news/2004/01/2004011301005047.htm+%E7%B1%B3%E5%9B%BD%E5%82%B5%E3%80%8020%E5%85%86%E5%86%86&hl=ja&ie=UTF-8

While it may run out of funds for this particular purpose, it seems to be having an effect-- the yen has fallen recently against the dollar, now standing at about 107.

[Art_from_Ark]

72. By the way, Shroder Securities (Japan) is selling US government bonds

in a package affectionately called "Gekka Bijin", or "Monthly Income Beauty" (it loses something in the translation).

http://www.schroders.co.jp/

[muriel_volestrangler]

66. Sept 2003: 1/3 of US Treasury debt is foreign-owned

"Foreign ownership of Treasury debt has risen from one-fifth in 1995 to one-third today, the Financial Times of September 8 reported, citing Merrill Lynch as a source."
http://eatthestate.org/08-02/RiskyBusinessBorrowing.htm
And that's all foreign countries, not Japan on its own.

It's the purchasing of dollars that's unsustainable. Just because I can't dig a hole any deeper, it doesn't mean it's about to collapse.

67. If you've ever dug a deep hole

You'll note that the walls of the hole can collapse in on you, the deeper you go.

70. A lot of that US debt

Is apparently in the Japan reserves fund.

Note such is exactly what is being juggled--100b in US bonds in the back room.

I agree with you on the unsustainability.

[74dodgedart]

31. Does this mean we won't be able to afford the war anymore ?

eom

[Zhade]

34. That could be one positive factor. Maybe.

Another cold comfort is the thought that, with Peak Oil, the war machine sooner or later must grind to a halt.

Unless, of course, the Pentagon has some form of energy we're not privvy to. Which wouldn't surprise me, since military technology is usually about ten years ahead of where we're told it is...

[Occulus]

69. There was a device

or, more precisely, a process- outline I believe in an issue of Discover Magazine a few months ago that could turn trash of nearly any kind into usable fuel. It could make gasoline, kerosene, and one of the by-products was industrial-grade carbon black. Really, all the process they talked about did to make oil was what the Earth does over millions of years. They finally figured out the right temps and 'cooking times' for the trash. Different times and temps are required for different trash, but they get the right result.

The article mentioned that this process is scalable, meaning that one day we could see a flatbed truck with a mini-refinery on the back of it emptying our trash bins rather than a simple garbage truck. This would also save landfill space and enable us to mitigate the disaster of Peak Oil (althout they didn't directly address that part).

You need to be a Discover subscriber to read the article. It was published in their May 2003 issue; really good article and very intersting as well.

[northzax]

36. wow, this is flat out the most pessismistic thread of the day

chill people. no really, take a deep breath. There has been some minor propping up of the Dollar by the Japanese government, but no one really has the cash reserves to do serious damage to the currency market, there is too much for any one state to seriously effect.

this is not cause a panic.

[JNelson6563]

61. "minor proping up of the dollar"

haha Good one. "Minor" my eye.

So tell me, the next time we auction of $60 billion in Treasuries to keep the gubberment going and Japan doesn't show up cause they're out of funds, then what?

"Everything will be ok" won't cut it. I suggest supply-siders and Bush-economics apologists come up with something a little more effective. Like effective action instead of empty, ressuring platitudes.

Julie

38. (UPDATE 2) I clarified some of the story, added links

Hope you all like.

If anyone has questions,feel free to drop me an e-mail.

42. UPDATE 3 NOTE

See version of story on my website about how japan blew 100 billion US in just one month (it was supposed to last until March).

[Merlin]

43. Not buyin it. You owe us some solid info, Dan. No links = No story

I notice that you complain the links were scrubbed. But you're not providing us with those actual urls. Why?

When somebody pointed out you could get cached links from google, you thanked them and said they're still there. But still, you gave us no links. Why?

So far, sir, all we have are the opinions expressed on your own website. Sorry. That's not LBN.

If this were a genuine story, surely there's published evidence of the facts somewhere in the world.

44. Plenty of links

You are lazy.

The page has plenty of links. If you want the cached version of the Asia story go ahead and do the searched and pick "cached"

Someone posted a direct link on DU. It is also on Scoop NZ

46. Here lazy buns -- the Asian story

(1) "Japan's Foreign Reserves Hit Record", AFP, Friday January 9, 11:59,

http://asia.news.yahoo.com/040109/afp/ 040109035930business.html

Yahoo!: Error 404 The requested URL could not be found.

TRANSCRIPT FROM GOOGLE CACHE FOLLOWS…

Friday January 9, 11:59 AM
Japan's foreign reserves hit record after continued forex intervention

TOKYO, (AFP) - Japan's foreign exchange reserves, the world's largest, hit a record high at the end of 2003 as it continued to buy dollars to cap the rising yen and promised more funds for such intervention.

Japan's foreign exchange reserves rose 29 billion dollars to 673.5 billion dollars at the end of December for a fourth consecutive monthly record, the finance ministry said.

"The biggest reason for the gain was (currency) market intervention," said ministry official Hiroko Inaoka.

The ministry also said Friday that it is securing even more funds for intervention, saying it has struck a deal to sell US bonds to the Bank of Japan which could raise up to 10 trillion yen in cash by the end of March.

"This is to show the currency market that we are able to continue to react flexibly to deal with the situation," Ichiro Oishi, senior deputy director of the foreign exchange markets division of the ministry, told AFP.

Under the deal the finance ministry will have to buy back the US bonds from the Bank of Japan within three months of purchasing them, he said.

Japanese authorities spent 2.25 trillion yen (21.2 billion dollars) between November 27 and December 26 in an attempt to stop the yen's rise against the dollar, the ministry said Friday.

In recent trade, dealers said they suspected the authorities have been continuing to intervene in an effort to prevent a further rise in the yen and so protect the country's export-led economic recovery.

Japan's currency intervention in 2003 hit a record 20.06 trillion yen, according to the ministry.

The increase in the foreign reserves in December also reflected a five percent gain in the value of Japan's euro holdings against the dollar, ministry data showed.

Japan's foreign exchange reserves consist of securities and deposits denominated in foreign currencies, International Monetary Fund (IMF) reserve positions, IMF special drawing rights and gold.

Of the December total, foreign currencies accounted for 652.8 billion dollars, gold 10.2 billion dollars, IMF reserves 7.7 billion dollars and special drawing rights 2.8 billion dollars.

Japan remained the world's largest holder of foreign reserves for the 49th straight month, the ministry said, while China was second with 389.8 billion dollars as of the end of September.

ENDS

http://www.scoop.co.nz/mason/stories/HL0402/S00147.htm

47. kick

48. (deleted)

[LiberalFighter]

53. How much has gw* blown since 2001?

54. GW -- total bill 10 trillion?

You would have to say shrub blew intelligence leading to both 9/11 and Iraq.

Price tag...2 trillion?

His friend Ken Lay helped blow about 7 trillion in stock market savings.

The Japanese are having to blow another trillion to hold up currency because of GWs failed economic programs.

Is shrub really worth that?

[LiberalFighter]

55. gop would consider it worth it as long as they control it

[dusty64]

62. Great!

They've still got enough money to allow their government to send troops to Iraq against the will of their People however.

[BruinAlum]

63. Holy bat shit!

:wow:

[robcon]

73. This is utter nonsense.

The impact of Japan's reducing its support of the dollar will be a higher yen/dollar ratio. The Japanese government knows it can't really affect foreign exchange on a permanent basis.

This whole thread is a big "so what?"

[mobuto]

74. THIS IS NOT LBN

1. This is from a vanity website, violating LBN rules.

2. The analysis is wrong. There is no reason to believe there will be any major shift in the exchange rate.

3. The Japanese Finance Ministry is not out of foreign currency reserves.

[Moderator]

75. Not LBN... locking

As the present time, press releases are not permitted in the Latest Breaking News Forum, unless they are issued from the official campaign office of one of the Democratic candidates for President.

Please feel free to re-post this press release in the General Discussion or Economic Issues Forum.

Thanks!

DU Moderator