Japanese Yen Fundamentals Remain Weak and Low

by | Jan 14, 2008 | Archives

Japanese yen fundamentals and Japanese economic woes are raining Datsun cogs (not cats and dogs). Like this phrase, Japan ‘s economy is turned upside down. Economic woes are raining cats and dogs and these woes are blocks in the cogs of the Japanese yen and Japan ‘s economy and could hurt investors every around the world.

Fact about the yen and Japan can also help smart investors earn extra income and profit now.

Of course the Datsun and a strong Japanese yen has been gone for years but this car’s demise and the yen’s fall in a way reflects how Japan has hurt itself in the global economy and affected investors everywhere.

More than a few cogs and Datsun are affected for sure. Japan , the yen and its economy have suffered for fifteen years and a fast recovery is not likely for Nissan, the creator of Datsun , Japan ‘s economy for that fact.

The cogs in Japan ‘s economic wheels and the yen have been somewhat stripped and this affects investors everywhere…though this knowledge can also bring profits.

A recent BBC article entitled ” Japan ‘s auto sales at 35-year low” says:

“Automobile sales in Japan fell last year to a 35-year low as a shrinking population and limited wage growth hurt demand,” an industry group said.

Figures from the Japan Automobile Dealers Association showed sales of cars, trucks and buses down 7.6% from the previous year at 3.4 million.

The article shows that Nissan’s sales fell 9.7%.

The article goes on to say: “The decline underscores a downward trend for car sales in Japan, where sales have shrunk for the past four years, in marked contrast to the success its car firms enjoy in overseas markets.”

The demise of Datsun reflects some of the cultural problems that create economic woes in Japan (and investment opportunity).

The decision to change the name Datsun to Nissan in the U.S. was announced in the fall of 1981. The reasons are vague but are thought to mainly be cultural…Datsun was not the corporate name. Industry observers presumed substantial ego involvement, since the absence of the Nissan name in the U.S. rankled Nissan executives who had seen Toyota and Honda become household words. The name change campaign lasted for a three year period from 1982 to 1984, and cost Nissan a figure in the region of US$500 million. Yet even many years after the name change program was over, Datsun still remained more familiar than Nissan.

So it goes today on a bigger scale in Japan . Japan had a great real estate and stock market crash in 1990. Banks were overexposed and when the collateral on the loans fell…the banks should have called the loans.

Yet this would have caused loss of face…a dent in Japanese pride so instead Japan ‘s government has spent over 15 years and billions in a bail out…leaving Japanese industry weak and the country with a huge national debt.

Now Japan has an aging and shrinking population. Yet as one of the most culturally uniform nations on earth its immigration laws still discourage immigrants other than Japanese and encourages uniformity.

Economically this is exactly wrong. This is an era that rewards growing, diverse populations. Japan remains stagnant during a time when fluidity is the most important asset.

This has kept the interest rate on the Japanese yen low. This low rate has helped flood the global economy with low risk liquidity. People borrow yen for 2% or 3% and invest the loan to earn more.

These loans helped fuel the 1998 stock market bubble, the 2006 US and British 2006 real estate bubbles and have also (when frightened yen borrowers investors all try to dump their yen loans at the same time) helped lead to the subsequent crashes.

Yet borrowing yen still makes sense.

Here is an excerpt from our latest lesson in our Multi Currency Portfolio Course.

Our Green Portfolio consists of a $100,000 investment and $200,000, loan in Japanese yen. The portfolio rose 266.30% last year. A great deal of this profit came from the yen loan.

This year while most stocks crash and burn this portfolio is already up 10.04% in just two months.

Currency Investment Invested Value

EUR Seche Environnement 48,000.00 50,248.45

DKK Novozymes B 48,000.00 51,670.19

DKK Vestas Wind Systems 51,000.00 60,656.86

JPY Kurita Water Industr.6370 51,000.00 47,387.35

EUR Q-Cells Ag 87.81 51,000.00 57,371.96

SGD Hyflux Ltd 3.66 51,000.00 44,296.64

300,000.00 311,631.45

Investments Total Value 311,631.45

Loan Interest Rate Borrowed Loan and Interest

JPY 2.750% 200,000.00 201,588.34

Net Value 110,043.10

The Multi Currency portfolio lesson outlines why this is so and why yen loans still make sense.

Jyske’s downwards revision of Japanese equities fortifies why borrowing yen at 2.75% still make sense. Jyske said:

“We revise down Japanese equities to neutral weight from overweight. The way out of the economic problems for Japan has turned out longer than first assumed. Prospects for the labour market, the banks and the property market are on the right track. But it will take a while. And in a period where flexibility in the monetary policy is needed Japan is not the most obvious equity country. Japanese interest rates will not be raised in earnest until deflation is a thing of the past. A rise in interest rates will be seen as positive by the equity market. But this is not on the cards at the beginning of 2008.”

Learn how to profit from the multi currency lessons at www.garyascott.com/catalog/bldh

Whether global economic woes are raining cats and dogs or Datsun and cogs, smart investors can have an umbrella of profit from smart investments made with yen loans.


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