Yesterday, I compared Japan, Germany and the US using economic statistics collected by the CIA. It shows clearly that Japan's export/import numbers are reduced by 50% by keeping the value of the yen super-low vis a vis the dollar and the euro. On Friday, the dollar finally fell against the yen by a tiny amount but instead of trading at at least 100 yen to the dollar, the Japanese have successfully weakened their own currency so it is going now at 121 yen to the dollar. When will we hear yells for them to raise interest rates and defend the yen's value? Ha.
The dollar fell against the yen and most major currencies Friday after China took steps to allow its currency to appreciate faster.
The euro bought $1.3505 in late New York trading, up from $1.3492 late Thursday. The British pound rose to $1.9745 from $1.9743.
The dollar fell to 121.15 Japanese yen after rising as high as 121.39 Thursday, climbing from a nearly three-month low against the dollar. The yen strengthened on speculation that Japanese exports will better compete against Chinese goods with a stronger yuan.
In the 1980s, the US in a panic, called for a big meeting at the Plaza Hotel in the middle of Manhattan and the US negotiators asked to sell Manhattan for a box of beads. Basically, they demanded Japan raise the value of the yen to reflect the real value of their currency. They agreed to this and proceeded to buy up lots of Manhattan properties with yens that were suddenly going from 130 to the dollar all the way down to 86 to the dollar. This was a sudden jump in wealth and they went crazy over it. A huge stockmarket and property boom commenced in Japan.
When the bubble popped it was due to the catastrophic drop in exports to the US. During the period of the weak dollar/strong yen regime, US imports to Japan barely budged. The Japanese used their endless tricks to keep imports out. Finally, in desperation, they kicked off the Asian Currency Crisis and used it as a cover to once again make the yen much weaker than it really should be in any sane market. The machinery to keep the yen very weak works so well, even as we kill the value of the dollar today, the yen dies even faster.
Japan Targets US dollar for Nikkei Exporters
by Gary Dorsch
Japanese investors have $14 trillion in savings, and earn more from interest and dividends on investments held overseas, than from foreign trade. Japan’s current account surplus rose 22.2% in August from a year earlier to 1.48 trillion yen ($12.3 billion) earning 1.16 trillion yen from overseas investments, dwarfing a trade surplus 312.4 billion yen. Japanese investors were net buyers of 16 trillion yen ($140 billion) of foreign bonds in 2005, but avoided the US Treasury market.
The Bank of Japan affixed its reputation as the world’s second leading interventionist bank, when it sold 35 trillion yen in exchange for $315 billion US dollars, mostly between 105-yen and 112-yen, in late 2003 thru March 2004. The BoJ plowed the US dollars into US Treasuries until August 2004, when its holdings peaked at a record high of $699.4 billion. Thus, Tokyo is the world’s biggest “yen carry” trader.
Tokyo skillfully unwound $50 billion of its “yen carry” trade over the past two years, without disturbing the US dollar’s uptrend to 120-yen. Tokyo depends on the US dollar’s 5% interest rate advantage over Japanese Libor rates, to enable the dollar to bounce back from periodic sales of US Treasuries. Still, Tokyo holds onto the bulk of its US Treasuries, to maintain cordial relations with its military protector, especially while under nuclear threat from North Korea’s Kim Jong-il.
Japan’s ministry of finance and the US Treasury might have a secret target zone for the dollar /yen, and when the US$ approached 120-yen on October 23rd, Japan’s top financial diplomat, Hiroshi Watanabe told reporters in New York, “I see no reason for a further deterioration in the yen given the strength in the Japanese economy.”
Looking at the IMF stats, one can see that Japan certainly has been selling US bonds and have ceased buying them. On top of this, the Bank of Japan has been lending money at .5% interest to money men in Japan who have turned around and used this to buy up investments overseas. Virtually none of the trade surplus money or the money surplus from current accounts of investments enters the Japanese domestic markets or they would have serious inflation. This would kill the Golden Bank of Japan .5% interest rate Goose.
Gary Dorsch misses what is going on here. Japan isn't skillfully doing much of anything, the rigged game they created for themselves has inadvertently enriched and created a host of hedge funds run by former US Teasury officials like Snow with Cerebus, etc. The system is out of control at this point. The Japanese have stopped buying US bonds simply because China is buying them. They assumed China would play their own game which is why they are using every diplomatic tool they can grab to attack China's currency policies while successfully getting US negotiators, politicians and diplomats to attack only China. This has led to China strengthening the value of their own currency and they continue to buy huge amounts of US debts. They are now moving into the next phase of their long range plan to bankrupt the US.
Japan doesn't want to bankrupt the US, they want us to keep up this impossible relationship whereby we defend them militarily while they enslave us financially. But being greedy, they have decided to stop funnelling this ill-gotten gain back into our government's hands via buying US bonds! So the Chinese now control our fates. Want to see either high inflation or tax hikes?
All Beijing has to do is stop the purchases. And the yapping at China is tempting Hu and Wen very sorely.
Gary Dorsch (Global Money Trends) submits: "Free markets for Free men" is the battle cry for traders on Chicago's futures markets. But if you want to trade proxies for Japan’s Nikkei-225, such as ETF’s (EWJ) and (ITF), or the Japanese yen, be prepared to do battle with Tokyo’s warlords at the Ministry of Finance [MOF]. Meddling in the local markets is a time honored tradition at Japan’s MOF, and there is no limit to how far Tokyo will go when it comes to market intervention to support the aims of its big industrialists and banks.
For instance, when the Nikkei fell below the psychological 10,000 in February 2002, former MOF chief Masajuro Shiokawa drew up plans to buy 2 trillion yen of stocks directly from banks, and ordered the Bank of Japan to increase its monthly bond purchases to 1 trillion yen to drive bond yields lower. The MOF bought Nikkei futures contracts, squeezing short sellers ahead of the March 31st, fiscal year end.
Shiokawa then tightened short-selling rules and increased surveillance of bearish foreign brokers who accounted for half of the average daily trading volume on the TSE. Scrolling forward to 2006, with the Nikkei gyrating in the 14,000 to 17,500 range, Tokyo keeps close tabs on the Japanese yen /dollar exchange rate, and has pursued a cheap yen policy to indirectly support the Nikkei.
Last night, while crunching the CIA numbers, it became painfully obvious that Japan is keeping the value of the yen 50% below its true value. The current accounts showing trade surplus or deficit shows Germany and Japan holding very similar amounts. Japan is #1 and Germany, not China, is #2 when it comes to trade statistics. This is why I used both in these comparisons with the US which has miserable trade statistics.
There is only a $40 billion difference between their trade with Japan holding the extra money. But look at the export figures! Suddenly, the #1 profit maker is selling exactly 1/2 of what Germany, the #2 profit maker is selling! Huh? This is ridiculous. The US exports are valued at slightly less than Germany. Now, Germany is an industrial nation that has long held good trade stats with the world but the US is much bigger in population and it rules the Seven Seas, etc. Yet our trade in exports is less in value than Germany? And twice as big as Japan's?
The numbers of people working in industry in Japan are slightly greater than in Germany. The two countries are roughly the same size and both have considerable public transportation, etc. But Japan's use of oil is much greater than Germany's use of oil and this would mean a bigger trade deficit and more inflation but Germany has 4% inflation while Japan pretends to have 0% inflation!
And Germany's imports are double Japan's imports even though Germany has more resources than Japan. And the US has lots and lots of resources! Japan exports twice as much to the US than they import. Based on all these statistics, the value of the yen should double. But the political will to force Japan to double it is not there. All the sound and fury is directed only at China.
Gary's article detailing the tricks and schemes of the Japanese to create an impenetrable barrier to prevent trade with the US is great reading. And you can bet, our negotiators and political leaders know this perfectly well. Everyone in DC knows all this information. But instead of acting on it, they are going along with this disaster. Namely, they are all making a killing off of the carry trade with the Bank of Japan! All their supporters, friends and other members of the American business class are happy with today's system! They imagine this can run forever and there will never be a downside.
Of course, the fact that Japan has stabbed them all in the back by refusing to buy our red ink anymore doesn't occur to them because they are willfully stupid and don't want to think about tomorrow's consequences.
Fearing bank failures in the post crash period Japanese officials began propping up the stock market. Every time share prices fell below a certain price the government began a PKO (Price Keeping Operation) (13)Notes. The capital reserves of many Japanese Banks included endangered shares; it was critical that the value (share price) of these holdings not fall below a certain level. If they did, the banks would be threatened with insolvency.
Similarly, the Federal Reserve has undertaken Price Keeping Operations (PKO’s) to bail out big losers. The Fed has bailed out countries, institutions and even speculators all on the premise that they posed some sort of systematic risk and could bring everything down with them. The problem with bailouts however, is that they create a moral hazard and encourage speculation. To quote the Wall Street Journal (‘Decade of Moral Hazard’, Review & Outlook, September 25, 1998);
'[M]oral hazard, the term the financial community uses to describe the distortions introduced by the prospect of not having to pay for your sins, in this case financial ones. The prospect of government bailouts leads to abandonment of credit standards and assessments. As moral hazard grows you get a market so skewed by the expectation of bailouts that vital signs of genuine risk no longer get through. Eventually, the danger turns into one of systemic collapse.’
The Journal was talking about the 1998 bailout of Long Term Capital. The 1990’s seem to have been a decade of bailouts and moral hazard.
The systems set up in both Japan and the US are designed to enable funny money games that, if they go sour, end up raiding the Treasury departments of both nations in order to cover up or 'fix' messes caused by wild speculative games. This system has so emboldened the players making huge profits off of shoving money around, they have once again created a bubble in several economic venues simultaneously. And the amount of money floating around in this fashion is astonishing. The news this week that the Chinese communists are essentially taking over one of the bigger hedge funds, has made no impression on the average American or Japanese but you can bet, the Japanese economic samurai are flipping out over this! This is their game, not the Chinese. And the Chinese have a big trade surplus with Japan! It is a knife at the Japanese throat.
Any bail out of the present system depends on someone somewhere buying lots of government debts and this can't happen if there is no one buying. Right now, the #1 buyer of US bonds is the US Treasury. Namely, it is selling to itself and this means inflation. The #2 buyer is China. And I have said before, we are running so deep in the red, we can't run even deeper if something goes haywire with all the wild investors who have run up $13 trillions in IOUs! Already, the danger signs are appearing.
The US consumer must buy up nearly $1 trillion in trade and accept the debts that attend this bad trade or the entire system collapses. This month, the Japanese stock market has wavered up and down as fear competes with greed and hope. They are watching our statistics with fright and prayers that the US will continue this incredible, dangerous trade course. They are happy to see the US wants to keep the present status quo. But wisdom tells us, this is impossible now. Especially since Japan itself is unwinding its own holdings of US securities and handing them off each month to China!
How on earth do they hope to keep this game going? Inflation is increasingly obvious in Japan but like the US, they change the way the think about it and voila! It vanishes. Of course, the stress of keeping the fabled Japanese saver dumping his or her hard-gained savings into 0% interest accounts is collapsing. Even the stupidest Japanese now knows they are being ripped off and so they are turning their money to better purpose such as buying stocks and bonds...in Europe. And China. China's markets are behaving normally. The GNP, trade, value of property, stock markets, currency are all rising rapidly. This isn't 'inflation' in the sense that we see in Japan and the US, this is due to positive feed back. China's trade with the world is growing but SO IS THEIR INDUSTRIAL BASE.
The US base has been shrinking for 30 years and is now in a state of catastrophe. It can't get much worse but it is. If we exclude all the auto assembly plants parked in the US by Germany and Japan to build SUVs for the American markets, our industrial base would practically vanish.
International Financial Reporting Standards (IFRS), which aim to harmonise financial reporting in a world of cross-border trade and investment, have made great strides since they were adopted by 7,000 or so listed companies in the European Union in 2005. To date, over 100 countries, from Canada to China, have adopted the rules, or said that they plan to adopt them. The London-based International Accounting Standards Board (IASB) expects that to swell to 150 in the next four years.
Even America, no ardent internationalist, is working with the IASB to narrow the gap between its own accounting standards and IFRS, which foreign companies listed in America could choose by 2009, or possibly sooner. Today such companies must “reconcile” their accounts with American rules—a costly exercise that some believe is driving foreign listings away from the United States.
The need to have a real accounting is vital. And of course, the US won't do it. We want our Enron accountants! We want someone to come to us and tell us, the tsunami of red ink on every level is good news, it means we are the most powerful, richest people on earth. The Emperor can then stride outdoors, naked, into a blizzard.
The need for international accounting rules is obvious. When I thumb through various financial statistics, it has to be taken with a huge dose of skepticism. In order to 'fool' each other, many countries make their currency issuing or trade statistics as dim as possible. Just like our own government likes to hide the true nature of our government excess spending by including all the Social Security excess funds as tax revenues, so it is with everyone: they must cheat. And since the dawn of Free Trade, the need to see each other's bank accounts and financial records is of great importance.
Of course, the people milking the present system know perfectly well, the truth. But they have to hide it from everyone who isn't part of the international money gang. Just like our government cooperates with the Queen of England to allow her off-shore tax and money laundering operations in the Caribbean, these people allow all sorts of games to be played that are injuring the US taxpayers and consumers. The deal that has been struck is, the taxpayers don't have to pay taxes and the other governments conspiring to destroy our ability to control our finances will fund us by buying our bonds.
And up until this year, this has been the case. But no longer!
Sumitomo Mitsui FG Net Profit Falls 36% On JGB Trading Loss, Promise
TOKYO (Dow Jones)--Sumitomo Mitsui Financial Group Inc. (8316) said Monday its group net profit sagged 36% in the fiscal year ended March, hurt by a loss at its consumer loan subsidiary and government bond trading losses.
Ah, we see some signs of why Japan isn't bankrolling us so much anymore, nay, is selling us down the Yellow River. The flow of profits is now fading. The money stream is flowing the wrong way and China now has utterly dwarfed Japan's trade surplus with the US. Japan's surplus is the biggest in our joint histories but this isn't enough, China, who has a trade surplus with Japan, too, has utterly conquered the US markets and is now beginning to attack the heart and liver of Japan's trade: automobiles.
Japan would rather our economy collapse than let China oust them from the auto markets here. And if this means killing a flock of golden geese int he US, they will. They have a long history of suicide in the name of the Emperor! And the US citizens happily trusting the kindness of former foes is foolish. No nation should do this. This is why in Europe, there is so much resistence to many levels of integration because of fears that Germany will dominate them!
Yet they too, fall. For Germany is dominating all of Europe and they basically won WWII only we got rid of the Nazis for them. And looking at the statistics, isn't it interesting that both Japan and Germany mostly trade with their neighbors? If the US were to fall off the face of the earth, this wouldn't change much for either of them.