Thursday February 17, 2005 - 21:12:52 GMT
Share This Story
Foreign Exchange Analytics - www.fxa.com
Forex: Japan's Existential Recession
Japan's Existential Recession
If Japan had a recession in 2004 and no one knew it at the time was it really a recession? I suspect only really smart people can answer this one. But for those mere mortals like me, the best I can come up with regarding Japan economic performance in 3/4 of 2004 is the existential recession. It did not feel like one. The yen after all hit a 5-year high versus the dollar in December. JGB's were well behaved...not much scope to drop in yield. And the Nikkei was up 10% in 2004. Capex was off the hook in Q1 too. Indeed Q1 was so strong that GDP for the year ended up over 2%. And I am sure if anyone bothered to poll Japanese firms or consumers in Q4 on whether the economy was in a recession, people would uniformly have said no. I suspect the three consecutive quarterly contractions may reflect more measurement problems (ever shifting methodologies) than a bona-fide recession.
Okay enough excuses. Japan's growth was pretty atrocious all things considered. From a G7 point of view (read US treasury) it was downright embarrassing, unacceptable and demands something more than US and Euro Zone patience. Meanwhile Japanese officials are making a case that the yen is still overvalued. With China its major export market and US next dollar/yen at 110 is probably what MoF's FX chief Watanabe has in mind for fair value. And as far as euro/yen goes, Japan could care less about what is fair value (severely undervalued yen here). Only recently have the dollar-centric European authorities considered the free lunch Japan is eating off the Euro Zone via a weak yen.
I suspect that there is some basis for ignoring the 2004 recession in Japan and to be relatively optimistic about 2005 growth as most Japanese seem to be after the latest GDP data. The Nikkei is at a 7-month high. Capex is reportedly picking up again. And consumer spending is appearing more life-like. Also the problems the BoJ is having with meeting its daily money market targets because banks have all the cash they want (balance sheets are better and recapitalization machine of borrowing overnight near zero and lending to the gvt via JGB's is running at a much reduced pace). This is a sign of confidence from the banks themselves. Lending to the private sector again other than blue chip firms can't be too far away.
While a Chinese yuan revaluation is probably not in the cards for this year, Japan is already to intervene (sell yen) in the event of a revaluation that leads to yen buying. Unfortunately for Japan there will be little support for this in G7, if not outright opposition, the phantom recession of 2004 notwithstanding.
Dare I say that the yen is cheap at 138 versus the euro and 106 vs. the dollar. Time to start buying the currency on the bet that the official data on growth are not terribly informative however curious.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."