T.He’s finished The first will be, and the first, the last. An emerging theme in the capital markets is the securities that have created bumper returns in an era of low inflation, sluggish demand and zero interest rates – American technology stocks seem to be under pressure, while assets were doing terribly well in the 2010s (oil, mining and bank stocks). There is. If it is cheap, inflation-proof and previously unpleasant, capital is now increasingly attracted to it.
This brings us to the yen, the least expensive-prone large economy, Japan’s forgotten currency.
It had a reputation as a haven for Swiss francs or US dollars. Whenever a storm blows, the yen gathers. But not recently. In the turbulent weeks since the beginning of 2022, the yen has largely moved against the dollar. Even Russia’s aggression in Ukraine did not immediately change its course. The yen is a cheap currency that continues to be cheap. Its cheapness now seems like an obvious quality.
Japan remains the world’s largest lender. Its net foreign assets — which its inhabitants deduct from foreign ownership যা owes foreigners প্রায় about $ 3.5trn, which is about 70% of Japan’s annual GDP. These assets include certain investments, such as factory and office buildings. But a portion is kept in bank deposits, and shares and bonds, which can be quickly withdrawn.
In times of high pressure, such as during the global financial crisis of 2007-09, nervous investors turned their backs on Japan. The result was a complimentary yen. In some cases, the effects were dramatic. In October 1998, a crisis ensued LTCM, A broken hedge fund, came a head, the yen has risen from 136 to 112 against the dollar in a few days. It was the kind of rally that gave Yen its reputation as a safe haven. When the problem occurred, you followed the Japanese meaning.
It hasn’t worked so reliably lately. A significant change came with the re-election of Abe Shinzo Abe as Prime Minister in December 2012 and the subsequent appointment of Kuroda Haruhiko as Governor of the Central Bank of Japan. One of the main goals of “Abenomics” was to eliminate long-term inflation in Japan through the use of radical monetary policy, including huge central-bank purchases of bonds and equities. The result of all the sustainable money-printing was a much weaker yen, but not too strong inflation. Peter Tusker, an experienced observer of the Japanese economy and market, says the yen has lost its safe haven.
Can it be restored? In a world where inflation is a serious concern, there is much to be said for a currency that holds its purchasing power. The yen is now very cheap in real terms compared to the wide basket of other currencies. The yen is now more competitive than ever since the series began in 1994, according to a measure calculated by the Bank for International Settlements. EconomistIts Big Mac Index, a light-hearted measure of purchasing power, tells a similar story. The exchange rates needed to equalize the price of a Big Mac in Tokyo and New York are 67; But the yen is currently trading at 5 115. On this basis, the yen is devalued by 42%. Even if the yen continues to trade sideways, it is likely to be really cheap. Japan’s inflation rate is currently only 0.5%. 7.5% of America.
In the near term, risk aversion and rising interest rates in the US will support the dollar. But the more the Federal Reserve has to do to control inflation, the greater the risk of a hard landing for the US economy. The dollar may eventually find itself at the center of a storm. In such a situation, the yen will rally strongly. Société Générale, Kit Juckes of a French bank, sees the risk of the dollar-yen falling below 100 in the next year or two. Traders can wait for signs of trouble in the US economy before buying. For those who want exposure now, there is appeal in the Japanese stock market. It’s also cheap: it trades at 13.6 times the expected income. And for those cautious spirits who are looking for a cheap market share in cheap currency, Japanese banks offer 4% dividend yield and multiple transactions of single-digit earnings expected.
The tides are receding. Until recently, many investors feared “Japaneseization”, where economies were stuck in very low gear to keep prices and bond yields from falling. But now inflation is roaring and interest rates are rising. In an inverted world, the yen’s old-fashioned qualities should be remembered.
Read more from our columnist in financial markets, Buttonwood:
Are financial crossbreeds monstrosities or labradoodles? (February 19)
How an Evaluation of Unlisted Startups Will Adjust to a Share Price Decline (February 12)
Why the stock market shake has not yet spread to the credit market (February 5)
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This article was published in the section on finance and economics under the title “The Sun Rises”