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Investors in Tokyo looking to ECB, Fed for stimulus

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Let's study some basic economics, shall we?

Let's say you have two currencies, A and B. They have an exchange rate of X, which is basically equal to the purchasing power of A, divided by the purchasing power of B.

The purchasing power is the inverse of the quantity of currency in circulation.

If you increase the quantity of money, you decrease the purchasing power, as you have more money chasing the same amount of goods (inflation.)

What does this do the exchange rate?

If you increase the quantity of A, it INCREASES the purchasing power of B in terms of A. As A gets weaker, B gets stronger.

In this case, stimulus by both the FED and the ECB is nothing more than printing more money.

What happens to the Yen when there is an increase of dollars and euros on the market?

That's right kids, the Yen will get stronger, because the other two are getting weaker.

In fact, you can see this on various financial graphs, showing the monetary supply of the U.S, the EU and Japan. The U.S. and EU have been increasing, while Japan has been the same.

This is the main reason why the Yen keeps getting stronger and stronger.

When you purposely devalue your currency to stimulate your economy AND increase exports (as suddenly your products are cheaper when bought with stronger currencies) this is pretty much a classical currency war.

And Japan is losing. The Yen will continue to get stronger, Japan's exports will continue to shrink, and Japan's economy will continue shrink as well.

Not a good situation.

-3 ( +1 / -4 )

Not a good situation.

It depends who you are speaking of when you say "Japan" is losing. People who are exporting yen are reaping the benefits. And I dont just mean foreigners. Retired Japanese living in Thailand, Costa Rica etc for example are loving this, forex traders arent complaining either.

Not everyone in Japan is losing. Just sayin

-1 ( +0 / -1 )

@HowardStern

Agreed, although the exporters probably outnumber the importers. Perhaps more importing businesses should be created.

0 ( +0 / -0 )

@gaijininfo: The story is not talking about money supply nor currency exchange. I think you may be confused. And your currency formula is a bit odd. The correct formula you may want to use is: M x V = P x Y. Which is [Growth rate of the money supply + Growth rate of velocity = Growth rate of the price level (or inflation rate) + Growth rate of real output]

“Even if the market tilts toward a risk-on condition, we cannot deny the possibility that a high yen would cap the top side of the market,”

I think the story is trying to the avoid the yen from both growing faster or slower than the GDP with a stimulus solution. Besides, the standard deviation of investments across the globe for developed nations like Japan are best done in dollar due to their stability.

4 ( +4 / -0 )

bruinfanJul. 29, 2012 - 04:34PM JST

Agreed, although the exporters probably outnumber the importers.

Exports only make up 11% of the japanese economy, the rest is pretty much domestic consumption and domestically created. If the Japanese didn't have so many non-tariff barriers to imports, this would be a golden period for the Japanese consumer.

As it is, I've got to eat stringy Aussie beef at 3 times the price I would pay in Oz and pay 10 times the price I would in Mexico, for a Mexican lime , even when there's an FTA with Mexico !!!!

-6 ( +1 / -7 )

@Dog:

Exports only make up 11% of the japanese economy, the rest is pretty much domestic consumption and domestically created. If the Japanese didn't have so many non-tariff barriers to imports, this would be a golden period for the Japanese consumer.

I partially agree. Japan's domestic consumption is definitely high. But, believe it or not all countries have barriers, and it is not just Japan's barriers that cause low exports.... it is the finicky consumer (B2B and B2C) demanding a certain level of quality.

4 ( +4 / -0 )

need... free... money... to... gamble... need... free... money.... to... gamble...

0 ( +1 / -1 )

The story is not talking about money supply nor currency exchange

The story is talking about stimulus. Stimulus is an increase in money supply.

The story also talks about worries of a strong Yen. A strong yen is based on currency exchange rates.

So, yea, the story is talking about money supply and currency exchange.

-2 ( +1 / -3 )

@gaijininfo:

The story is talking about stimulus. Stimulus is an increase in money supply.

Wrong. Money supply means that the government expands the money supply through open market operations., specifically purchasing government securities (generally short-term T-Bills) from banks, thus putting more reserves in the hands of the banks. The government could pay in cash for these securities but rarely does. For bookkeeping entries, it is called printing money, but money is not literally printed. This is a common misconception. A stimulus program is something entirely different.

The story also talks about worries of a strong Yen. A strong yen is based on currency exchange rates.

Wrong. The strength of the yen is not based on currency exchange. A currency appreciation is a result of reduced net exports and decreased aggregate demand.

So, yea, the story is talking about money supply and currency exchange.

So, you are incorrect in both counts.

4 ( +5 / -1 )

@A+b/a=a/b

But, believe it or not all countries have barriers

Not like Japan does. N.America and the EU have formed themselves into gigantic free-trade zones. Korea and ASEAN are also pushing ahead with tariff-free and NTB-free arrangements, and yes, rice and farming are ON the table.

China's economy, meanwhile, has been fueled by FDI, while Japan has the world's lowest FDI ratio in the world.

-4 ( +1 / -5 )

"@JeffLee: Good point, currently the U.S. ranks 9th in the world as to "freedom" of trade, whereby Japan is 22nd (ahead of Germany, South Korea, UAE, Spain, Malaysia, Mexico, France, etc). I know what a Free Trade Zone is, but what is your point, or what are you trying to say with your statement below?:

Korea and ASEAN are also pushing ahead with tariff-free and NTB-free arrangements, and yes, rice and farming are ON the table.

As for Foreign Direct Investment (FDI):

China's economy, meanwhile, has been fueled by FDI, while Japan has the world's lowest FDI ratio in the world.

You are incorrect. Please go to the CIA World Factbook and look for the FDI rankings. Japan is not far from the U.S. and China. But again, not sure what you are trying to say.

4 ( +4 / -0 )

@A+b/a=a/b Well, I talking about Japan's extraordinary barriers to trade compared to most other countries.

Sorry for lack or elaboration, but I cited the inward FDI flow as ratio to GDP. This figure can indicate how open/accessible/friendly an economy is to foreigners. The data I checked shows Japan having the lowest ratio among OECD countries.

From Japan Institute of Foreign Affairs: "Japan's ratio of inward foreign direct investment to GDP is 3.9%, which is the lowest among the countries in the figure. The ratio for the U.K. is 48.4%, more than 10 times higher. The ratio of other major developed countries, such as the U.S. and Germany, is around 5 to 6 times higher than Japan. Compared to China, India and South Korea, as well, Japan's ratio is materially low, at about one third of their ratio." http://www2.jiia.or.jp/en/pdf/research/H23e_competitiveness/05_urata.pdf

As for finnicky Japanese consumers, I think most of the Japanophile analysts gave up on that one after the stunning proliferation of 100 yen stores nationwide. Japanese consumers LOVE cheap stuff!! Just like everyone else. Further, most of the gadgets sold at major retailers in Japan are China-made and are usually global products anyway.

-4 ( +1 / -5 )

@JeffLee:

Sorry for lack or elaboration, but I cited the inward FDI flow as ratio to GDP. This figure can indicate how open/accessible/friendly an economy is to foreigners.

True, but only when it comes to number of mergers and acquisitions with investments that often occur when a foreign company acquires or merges with an existing domestic company. Inward investments tend to help companies grow and open borders for international integration but are not a basis of openness/accessibility/friendliness.

The link you provided does not exists.

As for finnicky Japanese consumers, I think most of the Japanophile analysts gave up on that one after the stunning proliferation of 100 yen stores nationwide.

You are speaking about consumer purchases from retail stores. I specifically mentioned B2B and B2C.

5 ( +6 / -1 )

HowardSternJul. 29, 2012 - 11:09AM JST

Not a good situation.

It depends who you are speaking of when you say "Japan" is losing. People who are exporting yen are reaping the benefits. And I dont just mean foreigners. Retired Japanese living in Thailand, Costa Rica etc for example are loving this, forex traders arent complaining either.

Not everyone in Japan is losing. Just sayin

Ofcourse they are not in Japan then it is a different situation the article is Japan is loosing. Japan can import more cheaply but if it doesnt export then it will have no income to import. Common sence

1 ( +1 / -0 )

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