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Should this alarm me?

Puppycow

Penultimate Amazing
Puppycow
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Jan 9, 2003
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Yokohama, Japan
Japan’s Currency 25 Percent Overvalued, Goldman’s O’Neill Says

Jan. 18 (Bloomberg) -- The yen is probably twenty-five percent overvalued and Japan’s days of trade and current account surpluses “look to be finished,” according to Jim O’Neill, the economist who coined the term BRIC a decade ago.

“Japan appears to be losing its current account surplus capability. That, together with 1 percent bond yields and debt to GDP of 200 percent of GDP, with a currency that’s probably overvalued by at least 25 percent, strikes me as, for big macro guys, very interesting,” said O’Neill, chairman of Goldman Sachs Asset Management, in an interview on Bloomberg Television’s “Inside Track” with Erik Schatzker.

. . .

The day when a short position on Japanese bonds will pay off is “getting closer and closer,” according to O’Neill. He says Japan is “much more interesting than the European thing now. Europe was interesting 18 months ago, not so much now.”
Click to expand...

On one hand, if it declined by 25%, it would just go back to where it was a few years ago. This would arguably be good for Japan, especially the export sector. But what if it continues after that?

The other thing I worry about is the debt. Japan's population is getting older and declining. There's going to be fewer and fewer working age people left to pay taxes and more and more old people drawing pensions and social security. I don't really understand how the math can be made to work. Is the whole country just in denial about this?
 
Puppycow said:
Japan’s Currency 25 Percent Overvalued, Goldman’s O’Neill Says



On one hand, if it declined by 25%, it would just go back to where it was a few years ago. This would arguably be good for Japan, especially the export sector. But what if it continues after that?

The other thing I worry about is the debt. Japan's population is getting older and declining. There's going to be fewer and fewer working age people left to pay taxes and more and more old people drawing pensions and social security. I don't really understand how the math can be made to work. Is the whole country just in denial about this?
Click to expand...

In denial about what? What's there to be in denial about? Nothing at all. Oh, look! AKB48!
 
The same thing is happening here in the States, Amigo. Not only should you worry, but a certain amount of panic would make a degree of sense.

But, hey! At least you don't have DEATH PANELS!!!
 
If I had to guess.....

Right now, I don't think you have a fair basket of currencies to weigh the Yen against. It should hold its own against the Euro, Pound, and Swiss Franc, I feel. It'll probably lose ground to the dollar as those other currencies will do the same. Europe's going to have a bad case of the Economic Flu for another six months, I reckon - particularly in March when Greece defaults.

In short, it may be going in different directions. Steady/up against the European basket - down against the dollar and the RMB. But I don't think I'd count on a crash/precipitous drop. As production comes back post-quake/crisis, exports will bolster the Yen somewhat but it depends on what the central bank does. They could dump a few trillion yen on the market, themselves, if they want to see it trading around 90 to the USD in order to recapture some of the US market.

I am not a currency trader - but I'm watching several currencies the past half year because I'm cashing out of a Swiss Franc denominated retirement fund, and I have to decide where and how to move the money.
 
For purely selfish reasons, I am hoping it declines so I can save money on imports :p .

I have tried to study the Japanese economic policies, but I just have no idea :confused: .
 
For most folk the whole idea of Japan is complete and utter bewilderment. They have crazy work ethics that don't mesh easily with western working methods. I have absoluted hated working there, the guys on the shopfloor are too subservient, and their immediate bosses are too demanding. It makes working in the middle of the group an absolute nightmare, especially if you are working through an intermediate company, they add another couple of levels of complexity!

On the plus side, their national debt is largely home-owned, htey do not have a large foreign debt in the way that many western countries do, this allows them to look over a much longer time-frame. In the west, governments are often looking at the 5 year time-frame, because this meshes with the life-cylcle of the parliament. The Japanese are often looking at 20+ year timeframes, which is why they haven't made a fuss about the latest downturn.
 
Apparently, this Big Mac Index in the Economist is supposed to tell us whether or not currencies are at their correct value.

I'll be buggered if I understand it but Japan seems to be about right:

20110730_WOC956.gif


http://www.economist.com/blogs/dailychart/2011/07/big-mac-index
 
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