Wednesday August 17, 2005 - 11:52:47 GMT
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Black Swan Capital - www.blackswantrading.com
So what about the yen...
“Foreign exchange is about relationships. Your ability to find good liquidity, your ability to be plugged into the information flow—it all depends on relationships.
Bill Lipshcutz- Taken from his interview in The New Market Wizards by Schwager
Does $-yen represent a buy or a sell?
chart $/yen weekly
With politics of postal reform swirling, maybe that’s what matters. Many believe it could determine the future path of Japanese reform. From The Economist:
“The risks [of snap election scheduled for September 11th] are huge: for Mr Koizumi, his party and for Japan. Although each of the two biggest contenders—Mr Koizumi's wing of the LDP and the opposition Democratic Party of Japan (DPJ)—backs a freer and more flexible Japan, neither may be able to win a clear majority. The immediate outcome could leave anti-reformists in a position of leverage, and perhaps greatly emboldened. For all the dangers, however, this could be just the moment for which many champions of real change have long been hoping.”
Ongoing reform could set the stage for the Bank of Japan to finally change its zero interest rate policy. We are already seeing long rates in Japan tick higher with stocks. But the question remains: Are we seeing just another false start for the Japanese economy?
In piece titled “From bug to butterfly” by Takehiro Sato and Robert Feldman of Morgan Stanley:
“This recovery is real and sustainable. The GDP deflator likely exceed zero for the first time since 1997 in 2006. Deflation is ending.
The Bank of Japan will likely reduce quantitative easing in the first half of 2006, but keep zero interest rates in place throughout the forecast period. As bank lending increases, ultra-low interest rates should become stimulative again, and support asset markets.
“Oil prices have recently hit new highs, which poses some risk. US and Chinese growth are potential risk factors. Political uncertainties could dampen the spirits of investors.”
But not so fast says Stratfor.com:
“Japan registered an annualized growth rate of 1.1 percent from April to July of 2005… But do not get too excited. The crushing debt, the inflexible labor market and the inability of the Japanese to invest their money where they want mean that even the Bank of Japan -- the country's central bank -- believes that 1.1 percent is the maximum sustainable growth for the economy…it is the best Japan can hope for.”
But people are getting excited about Japan. As you can see in the chart below, stocks could be breaking out to a fresh four-year high:
chart nikkei weekly
The stock market is the largest repository of collateral value, to paraphrase Mr. Soros. And this move could have a positive self-feeding impact on the Japanese economy. And if it does, we would expect The Bank of Japan to take note. And if they do, just maybe the country emerges from deflation and zero interest rates at the same time. Both of those things, one has to believe, are good for a currency over time.
Black Swan Capital
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