The facts speak for themselves: in 2003, Japan spent about 180 billion dollars to protect companies against a rising yen. For this year, Prime Minister Junichiro Koizumi's national budget raises potential intervention firepower by 61 trillion yen or about 580 billion dollars. Put another way--after spending 15 billion dollars on average every month in 2003, Japan now has the budget to spend 48 billion dollars per month to protect its corporations from a falling dollar--48 billion dollars is more than three times Japan's monthly current account surplus. As if to leave no doubt about the global political economic realities, 48 billion dollars also amounts to just about the monthly U.S. budget deficit funding requirement. ...
Survey after survey has revealed that, yes, about 50 percent of Japanese corporations can be profitable with a yen stronger than 100 yen per dollar. However, reweighting these surveys by the number of employees, the result changes significantly. Only 20 percent to 25 percent of Japanese workers work in companies that can make a profit if the yen surges past 100 yen to the dollar. So with four out of five workers exposed to a stronger yen, political pressure for continued exchange rate protectionism is poised to stay strong, at least until the mid-July House of Councillors elections. ...
This vendor-finance relationship is, de facto, impossible to break. Any businessman knows that the loser in breaking it will always be the vendor, never the buyer (as U.S. car companies are poised to find out the hard way when they try to end zero-finance deals for U.S. car buyers). Put another way, Japan and China cannot stop buying U.S. debt, because doing so would cause a U.S. recession that in turn would quickly force a sharp rise in Chinese and Japanese unemployment. For now, the political leadership in both countries is still too weak to dare taking this step.
Importantly, Japan-China financial relations are being pulled together very rapidly by these factors. The financial common ground is that taxpayers in both countries find their money increasingly tied up in dollar denominated assets, via the steady rise in official reserves. The power of the two largest creditor nations--Japan and China--acting together, perhaps beginning to renegotiate the terms of the dollar-based global financial system, would pose a real challenge to G-7 financial leadership. This, however, is unlikely as long as the U.S. consumer is the buyer of first and last resort for the excess capacity of Japan and China. Unless there is another buyer, the vendor remains hostage to its buyer.
Which means that Japan will be increasingly looking to Europe as its "buyer of first and last resort," to get out from under the hegemony of the dollar.
Link:
http://www.yomiuri.co.jp/newse/20040220wo15.htmOn edit: this basically is the first time I've seen the US deficit tied to the amount that Japan is propping up the yen, so I did think it was, in fact, news.
Heck, given what it says about Japanese companies' profitability w/ a stronger yen, it's clearly news to Americans.
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
