Post by jeffolie on Sept 4, 2007 16:43:08 GMT -6
The sharp rally in the yen during August will twist the deflationary knife deeper, slashing the profit margins of exporters. The "Seven Samurai" -- led by Toyota, Honda, and Toshiba -- have seen their stocks pummeled on the Tokyo bourse.
Japanese investors have taken a beating on the yen "carry trade," where they borrow in Tokyo to chase higher yields around the world. The Bank for International Settlements said in its quarterly report yesterday that the overall yen carry trade has reached $1,050 billion and the Swiss franc sister trade is $678 billion.
Japan is often overlooked in the global equation but it is the world's second-biggest economy by far, and top creditor with overseas assets of nearly $3,000 billion, the mirror image of US external debts. It dwarfs China as an economic power. China is displaying early warning signs of a cyclical peak, with imports turning down from April to June.
Critics say the Bank of Japan jumped the gun by ending its six-year policy of zero interest rates in July 2006, when prices were still falling. Economic growth fell to 0.1percent in the second quarter. Barclays Capital is forecasting contraction of 0.3 percent this quarter.
Charles Dumas, global strategist at Lombard Street Research, blamed the relapse on fiscal overkill by the ministry of finance, and warned that the damage could exceed the fall-out from the US sub-prime debacle.
"They are smashing the economy with a fanatical fiscal squeeze that has cut the deficit from 8 percent of GDP in 2003 to nearer 1.5 percent this year. This is a $5 trillion economy, which is not far short of a tenth of world GDP, and it is crumbling fast. We think there is going to be a recession and it will have a serious effect on global growth," he said.
Japan's economy has slowed sharply over the summer and may now be on the brink of recession, dampening hopes that Asia will buttress world growth as America battles the sub-prime housing crisis.
In the latest grim data, Tokyo said wages had fallen for the past eight months in a row. The cumulative fall over the past year to July has been 1.9 percent, evidence of how intractable deflation can become once lodged in an economy. Business investment fell 4.9 percent, with the pace of decline gathering speed in recent months.
www.gata.org/node/5449
Japanese investors have taken a beating on the yen "carry trade," where they borrow in Tokyo to chase higher yields around the world. The Bank for International Settlements said in its quarterly report yesterday that the overall yen carry trade has reached $1,050 billion and the Swiss franc sister trade is $678 billion.
Japan is often overlooked in the global equation but it is the world's second-biggest economy by far, and top creditor with overseas assets of nearly $3,000 billion, the mirror image of US external debts. It dwarfs China as an economic power. China is displaying early warning signs of a cyclical peak, with imports turning down from April to June.
Critics say the Bank of Japan jumped the gun by ending its six-year policy of zero interest rates in July 2006, when prices were still falling. Economic growth fell to 0.1percent in the second quarter. Barclays Capital is forecasting contraction of 0.3 percent this quarter.
Charles Dumas, global strategist at Lombard Street Research, blamed the relapse on fiscal overkill by the ministry of finance, and warned that the damage could exceed the fall-out from the US sub-prime debacle.
"They are smashing the economy with a fanatical fiscal squeeze that has cut the deficit from 8 percent of GDP in 2003 to nearer 1.5 percent this year. This is a $5 trillion economy, which is not far short of a tenth of world GDP, and it is crumbling fast. We think there is going to be a recession and it will have a serious effect on global growth," he said.
Japan's economy has slowed sharply over the summer and may now be on the brink of recession, dampening hopes that Asia will buttress world growth as America battles the sub-prime housing crisis.
In the latest grim data, Tokyo said wages had fallen for the past eight months in a row. The cumulative fall over the past year to July has been 1.9 percent, evidence of how intractable deflation can become once lodged in an economy. Business investment fell 4.9 percent, with the pace of decline gathering speed in recent months.
www.gata.org/node/5449