Yen should we sell?

Do you have to sell yen? May 18, 2009 is coming difficult years for the Japanese economy beyond the current international financial crisis. While this crisis was a blow to the economy of Japan, it was already dragging a number of difficulties that the economic outlook remained under stress. The Japanese concern about the economic situation is reflected in the rate of suicides increased by 40.6% to the difficulties in finding employment. In this context, adverse and even tragic, discusses the fate of the yen What are the prospects Japanese currency in the medium term? Looking at a graph of the evolution of the yen against the dollar since 1997, noted that the Japanese currency has been appreciating against the dollar (although not continuously). If one is guided by the trend that makes the graphics will probably be inclined to anticipate the continuation of such behavior in favor of the yen and no doubt, be making a mistake that can cost you dearly. Is that factors from both the Japanese economy as the U.S. which suggest that the medium term, the Yen weakened against the dollar.

As the chart may not be of much use to anticipate the behavior of the yen (say I do not expect technical analysts share), I should take a look at the fundamentals of the economy of Japan. In view of the macroeconomic fundamentals that observes the Japanese economy, medium-term prospects of the yen did not seem too positive. With a fiscal deficit difficult to reverse, public debt levels complicate maintenance and even now, with a current account deficit, the Japanese economy will remain weak for several years and this fragility will inevitably result in fragility for the yen. The difficulties in the economy will keep pressure on the Bank of Japan to keep pressed the benchmark interest rate that can awaken old ghosts. Is is a new carry trade? We will see, there is a possibility and soon resurface incentives to do so, which will inevitably undermine the value of the yen.

Although it was coming, was a surprise the result of annual surplus that Japan's current account fell for the first time in seven years for the year ending in March, a sharp decline in exports. The fall in current account surplus reached an alarming 50.2%, according to the Spanish realizes DNA. The drop in foreign sales made Japan's trade balance went into red after three decades (U.S. $ 7,382 million in the fiscal year ended in March this year). The fall in the external accounts beyond the state of the international situation. Increasingly, those who ask to review the competitiveness of Japanese products and services. The problems of competitiveness of the economy thus anticipate the continued deterioration of external accounts in Japan, which is bad news also for the strong yen. In Japan no choice but to resign themselves to withstand a sharp contraction in GDP during the current fiscal year. The same could rise to 3.3% according to Xinhua, but not be ruled out a greater contraction. For the first quarter, according to Reuters, analysts expect the market anticipated that Japanese GDP contracted by a record 4.2%.

Kiyohiko Nishimura, vice president of Bank of Japan, anticipated economic weakness likely (Do you anticipate the evolution of monetary policy?), Stay for a few years, "Once an adverse feedback loop has begun, it is extremely difficult and costly to stop it and restore confidence?. Japan has recently experienced an economic depression that began in 1990 and did not culminate until 2005 completely. As the economy sinks, the criticism of the stimulus plan aimed abound consider only win votes and not having a real impact on the economy. The Japanese Economy Minister Kaoru Yosano defended himself from criticism behind the old excuse of the long term, saying: "This will not happen overnight, but we must move towards an economy based on the domestic market?. The truth of the matter is that the Japanese economy has a clear orientation to foreign markets and difficult to reverse, especially since China's growth which translates into an interesting growth potential demand. For if all the problems facing the Japanese economy were not enough, in recent months, the yen has added a new enemy that is making good progress.

The yuan is undoubtedly emerging to give shade to the Japanese currency. China's currency is underpinned by the Chinese government's political will that this is so. China is advancing rapidly in the trade agreements in which the yuan becomes the currency of exchange. The Chinese government's policy to impose the yuan internationally is still very active. The imposition of the yuan, first regionally and then becoming a world reference currency, removes (and remove) the Japanese currency demand, accentuating his downfall. The competence of the yuan and the Japanese economy's problems are not solved in a short time, virtually condemn the fate of the yen over the medium term. However, for Japan it is not a bad news because despite these to strengthen domestic demand and government's goal, the reality is that external demand will again be to help the Japanese economy out of the situation in which it is located. Will the future weakening of the yen a problem or help the economy of Japan? It should be noted how this affects weakening inflationary pressures, but in principle it can be considered a positive factor external to rebuild the strength of the economy.

Clear that Japan's competitiveness can not be reduced to a weak exchange rate, but involve economic reforms in Nippon.