A War of Currencies in Asia...... One of Prime Minister Abe’s goals is to devalue the Yen. In fact, this is about the only tool he has to try to save Japan from deflation. The US FED is in concert in helping Japan meet this goal, but there are a lot of unhappy Asian nations that see Japan’s (successful) efforts in devaluation as being a BIG threat to their export markets – and therefore a threat to their survival. Which nations? Korea, Taiwan – but mostly importantly, China. Take a look at the Japanese Yen’s value chart. economy-guy/images/yen.png You can see the dramatic RECENT drop in the Yen’s value – and you can see the very short time that Abe has been performing his “Abenomics” experiment in Japan. All measures of the Japanese economy are in full retreat. Japan has just entered (another) recession – that means negative GDP growth for 2 consecutive quarters. This was a big surprise to anyone who wasn’t watching the facts march by. In addition, any other measures are negative, such as industrial production. But, the chart that I find most scary is this one – the Yen versus the Chinese Yuan. economy-guy/images/yen_vs_yuan.png You can see that the recent Japanese devaluations have ERASED all the Chinese efforts at devaluation over the past 30 years. That must has raised some MAJOR concerns within the Chinese government. Japan is becoming a major threat to Chinese exports – and the trend is not China’s friend. What options do the Chinese have to counter this THREAT to their economy? 1. Devalue the Yuan 2. War Which one will they choose? I don’t know, but I truly believe that the Chinese will not sit still to this major threat. The other Asian nations are also reacting to the Japanese threat – and are attempting to devalue their currencies. This has had one of the biggest effects on the US Dollar in recent history – as the US Dollar soars against most other currencies. But, you must put the Dollar’s recent RISE in value in context. The Dollar has been on a devaluation trend since the early 1980’s. The recent breakout to the upside can clearly be seen in the chart below. If the Dollar breaks the upper dotted line – watch out. Don’t we live in interesting times? economy-guy/images/dxy.png
Posted on: Fri, 21 Nov 2014 06:23:23 +0000
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