rfordejr comments

Posted in: Cabinet ministers visit Yasukuni Shrine; Abe sends offering See in context

When CNBC reported that Government officials visited the war shrine, an attack on the Japanese Yen consistent with foreign government intervention occurred (n.b., occurred just after 10:00 PM Eastern Standard Time), which strengthened the Yen in a manner adverse to the economic aims of the Central Bank/Government and dramatically lowered the Nikkei 225. In short, when a foreign government who opposes a weaker yen surreptitiously intervenes to advance their interests, a case can be made that Japan would benefit from the Japanese Central Bank countering the action of that foreign government by clandestinely intervening to weaken the yen. Only the Japanese Central Bank has the balance sheet required to effectively stand up against another country; and fortunately, the Constitution does not prevent Japan from defending itself against this type of foreign attack.

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Posted in: Abe may sweeten sales tax hike with corporate tax cut See in context

The time for Japan being timid in pursuing its national interest is over. Before engaging in tax reform, Japan needs to push the chess piece that the Swiss National Bank chose in September 2011 when the SNB stated unequivocally to markets that it would not permit 1 Swiss franc to be worth more than 0.83 pounds (SFr 1.20 to the Euro). More specifically, Abe and Kuroda need to state unequivocally to markets that for the next 5 years, Japan will not permit the Yen to strengthen more than 100 Yen to the US Dollar; and that if the success of Abenomics requires it, they will produce a still weaker yen.

Such a stand will produce the following benefits: First, most Japanese firms have based their earnings estimates on the assumption that dollar/yen will trade between 91 and 95. Creating certainty that dollar/yen will not be weaker than 100 will permit these firms to raise their earnings estimates and plan domestic infrastructure/investment projects with certainty that the worst case scenario for their profit projections can be calculated using dollar/yen of 100. Due to the market’s expected rate of dollar/yen equilibrium closer to 105, this cutting off of the higher end of the current dollar/yen volatility range below its expected equilibrium price, Japan would avoid the UK’s September 1992 mistake and thus limit its action to diminishing the range of volatility while demonstrating respect for the course of long term currency flows. Consider the value of Draghi’s verbal intervention when he stated that he would do “Whatever it takes” and that “It will be enough”. Market participants holding European policymakers hostage via the credit-default swap market, sovereign debt yields, and equity shorts were tamed such that they came to understand the merit in the mantra “Don’t fight the Central Bank”. Since then, they have been compliant, and the efforts of European policymakers to achieve their aims have been facilitated. In like manner, Japan too needs to make the analogous announcement in order to convert markets from foe to friend to the success of Abe and Kuroda.

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Posted in: Japan's economic growth slows in April-June quarter See in context

The time for Japan being timid in pursuing its national interest is over. Japan needs to push the chess piece that the Swiss National Bank chose in September 2011 when the SNB stated unequivocally to markets that it would not permit 1 Swiss franc to be worth more than 0.83 pounds (SFr 1.20 to the Euro). More specifically, Abe and Kuroda need to state unequivocally to markets that for the next 5 years, Japan will not permit the Yen to strengthen more than 100 Yen to the US Dollar; and that if the success of Abenomics requires it, they will produce a still weaker yen.

Such a stand will produce the following benefits: First, most Japanese firms have based their earnings estimates on the assumption that dollar/yen will trade between 91 and 95. Creating certainty that dollar/yen will not be weaker than 100 will permit these firms to raise their earnings estimates and plan domestic infrastructure/investment projects with certainty that the worst case scenario for their profit projections can be calculated using dollar/yen of 100. Due to the market’s expected rate of dollar/yen equilibrium closer to 105, this cutting off of the higher end of the current dollar/yen volatility range below its expected equilibrium price, Japan would avoid the UK’s September 1992 mistake and thus limit its action to diminishing the range of volatility while demonstrating respect for the course of long term currency flows. Consider the value of Draghi’s verbal intervention when he stated that he would do “Whatever it takes” and that “It will be enough”. Market participants holding European policymakers hostage via the credit-default swap market, sovereign debt yields, and equity shorts were tamed such that they came to understand the merit in the mantra “Don’t fight the Central Bank”. Since then, they have been compliant, and the efforts of European policymakers to achieve their aims have been facilitated. In like manner, Japan too needs to make the analogous announcement in order to convert markets from foe to friend to the success of Abe and Kuroda.

0 ( +0 / -0 )

Posted in: Gov't pledges to slash public spending by Y8 tril over 2 years See in context

Before raising consumption taxes, Japan needs to push the chess piece that the Swiss National Bank chose in September 2011 when the SNB stated unequivocally to markets that it would not permit 1 Swiss franc to be worth more than 0.83 pounds (SFr 1.20 to the Euro). More specifically, Abe and Kuroda need to state unequivocally to markets that for the next 5 years, Japan will not permit the Yen to strengthen more than 100 Yen to the US Dollar; and that if the success of Abenomics requires it, they will produce a still weaker yen.

Such a stand will produce the following benefits: First, most Japanese firms have based their earnings estimates on the assumption that dollar/yen will trade between 91 and 95. Creating certainty for them that dollar/yen will not be weaker than 100 will permit these firms to raise their earnings estimates and plan domestic infrastructure/investment projects with certainty that the worst case scenario for their profit projections can be calculated using dollar/yen of 100. Due to the market’s expected rate of dollar/yen equilibrium closer to 105, this cutting off of the higher end of strength as outlined by current dollar/yen volatility below its expected equilibrium price, Japan would avoid the UK’s September 1992 mistake and thus limit its action to diminishing the range of volatility while simultaneously demonstrating respect for the course of long term currency flows. Consider the value of Draghi’s verbal intervention during the thick of the European Financial Crisis when he stated that he would do “Whatever it takes” and that “It will be enough”. Market participants who were holding European policymakers hostage via the credit-default swap market, sovereign debt yields, and equity shorts were tamed such that intuitively they came to understand the merit in the mantra “Don’t fight the Central Bank”. Since then, they have been compliant, and the efforts of European policymakers to achieve their aims have been facilitated. In like manner, Japan too needs to announce to markets that it will not permit the Yen to strengthen more than 100 Yen to the US Dollar, and will do “Whatever it takes” including enforcing a weaker exchange rate in order to convert markets from foe to friend to the success of Abe and Kuroda.

1 ( +1 / -0 )

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