Is the Yen really appreciating or is it the US etc that's falling

[panhead_pete 27]

I dont consider myself overly intelligent but Im more silly then stupid and I have a basic understanding of macro economics on the global scale but I am somewhat confused. How can the Yen be so strong this year when the economy is in such trouble, with incredible debt levels, stagflation, aging population etc.

 

Perhaps someone can provide some insight. I can only assume its high against the Euro and US as both of these currencies have taken such a hammering this year? Or is there another reason?

[RobBright 35]

Presumably largely related to the carry trade.

In the last few years many institutional investors borrowed yen at very cheap interest rates, used it to invest in other countries where the returns were higher.

Now with the financial crisis, the stock market is down, returns are less due to lowering of base rates, investments looking more risky, the need for cash is high to cover write downs. Therefore a lot of these loans are being repayed... to repay they need to buy yen, so due to high demand the yen has appreciated.

It looks even more severe when compared to some countries eg UK pound where the currency has significantly depreciated even vs the dollar.

[RobBright 35]

[pie-eater 207]

If all the others are falling, doesn't that effectively mean that the yen is appreciating?

 

[NoFakie 45]

Japan is just about treading water after debt fueled madness twenty years ago. Everywhere else is still discovering the meaning of recent debt fueled madness, so lots of uncertainty and withdrawal symptoms. China is still in debt fueled madness.

 

Something like that anyway.

[Slippery Jim 65]

And...speculators are having a field day with the carry-trade carrion.

[mitchpee 10]

Pete a lot of it has to do with the sustainability of the debt and the confidence of it. Foreign investors in the US have much more skepticism because they hold tangible debt that is subject to fluctuate with the dollar and likewise economic condition of the US.

 

Japan on the other hand has debt not entitled to foreign countries but of their own central bank. This creates a sort of inherent debt in the way the currency fluctuates and really doesn't take outside speculation into consideration like the US dollar does.

 

This is just one aspect and about as clear cut you can put it without writing a book hahaha, not like I have the skill or time to do that anyway.

[SantaCruz 0]

There's that economics degree coming into play Mitch!

[panhead_pete 27]

Thanks guys. That helps.