Monday, December 22, 2008

Japanese Exports Plunge

In a news story not entirely unrelated to the one I mentioned in the previous post, the Japanese Finance Ministry today reported that Japanese exports plunged a record 26.7%. Not surprisingly, exports to the U.S. fell the most (34%), while exports to Europe fell 31% and exports to China 25%.

Imports fell too, but only 14.4%, and that was mostly a result of collapsing (particularly in yen terms) oil prices. As a result of the much lower decline in imports, Japan again posted a trade deficit. The fact that Japan now appears to have a structural deficit even as it has provides low return for capital again suggests that the yen is no longer undervalued, and is in fact likely overvalued. Renewed sell-offs on global stock markets might push it even higher in the short-term, but once we starts to see a recovery, the yen looks set to fall significantly.


Blogger Celal Birader said...

Hello Stefan,

Do you see much likelihood of THIS scenario coming to pass, and if not why not ? :

"The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said.

Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said."

5:24 AM  
Blogger stefankarlsson said...

As far as the part about Japan formally providing debt relief for the U.S. government, I see it as almost unthinkable, especially as they know the U.S. can and will provide "debt relief" by printing the money.

As far as the yen rising to 50 to 60, that seems highly unlikely too, unless the dollar collapse in more general terms against all currencies. At the current exchange rate, it is very difficult to make production of tradable goods in Japan profitable, as the stories in this post and the former one illustrates. But if the yen rise another 50-80%, that will almost completely knock out such industries. And with the Japanese economy imploding at that point, it seems difficult to sustain even the safe haven status of Japanese bonds.

4:53 PM  

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