The economic destruction in Japan is quite amazing in terms of size and velocity.
Industrial production fell almost 10 per cent in December compared with November. That’s a big number but it gets worse. The government re-did its forecasts for January to a 9 per cent drop, and February down another 5 per cent. In all, that knocks almost a third off output since September, putting it back, as Macquarie notes, at 1983 levels.
For car makers it is even worse: production may halve from last year.
Some elements play an important role in these figures. Most prominent influence – for us – is the rising yen. As Japan subcontracts a lot of their production abroad, a strong yen is a negative factor.
How come that yen is so strong?
Simply put: the massive unwinding of the carry trade last year caused the yen to strengthen.
And all desperate measures the BoJ has taken (as there are buy backs of corporate bonds or bonds issued by real-estate investment firms) have not helped until now. Next step is the purchase of shares owned by financial institutions so they can boost liquidity to the tune of 11 bln USD.
It’s clear that the local authorities will do everything they can, to bring down their currency. The Japanese are notorious to handle their currency that way and with rates at 0% there is no resistance to balance their exchange rate towards 100. Welcome to the race to the bottom.
The renko chart of the USD/JPY is pointing in that direction.
Industrial production fell almost 10 per cent in December compared with November. That’s a big number but it gets worse. The government re-did its forecasts for January to a 9 per cent drop, and February down another 5 per cent. In all, that knocks almost a third off output since September, putting it back, as Macquarie notes, at 1983 levels.
For car makers it is even worse: production may halve from last year.
Some elements play an important role in these figures. Most prominent influence – for us – is the rising yen. As Japan subcontracts a lot of their production abroad, a strong yen is a negative factor.
How come that yen is so strong?
Simply put: the massive unwinding of the carry trade last year caused the yen to strengthen.
And all desperate measures the BoJ has taken (as there are buy backs of corporate bonds or bonds issued by real-estate investment firms) have not helped until now. Next step is the purchase of shares owned by financial institutions so they can boost liquidity to the tune of 11 bln USD.
It’s clear that the local authorities will do everything they can, to bring down their currency. The Japanese are notorious to handle their currency that way and with rates at 0% there is no resistance to balance their exchange rate towards 100. Welcome to the race to the bottom.
The renko chart of the USD/JPY is pointing in that direction.
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