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Print 11 comment(s) - last by Mint.. on Jun 4 at 12:11 PM

Weakening yen means price increases in Japan

Apple has become latest major electronics manufacturer to increase the price of its hardware within Japan. Apple and other manufacturers have increased prices due to an increasingly weak yen.

Reuters reports that the Japanese yen has fallen more than 20% against the U.S. dollar since the middle of November. Increasing prices are reportedly rare in Japan where low-grade deflation has occurred over the past 15 years.

Apple has reportedly increased the price of some of the iPad models by up to 13,000 yen, which is equivalent to $130 in local Japanese stores.

The price increase means that the 64 GB iPad now costs ¥69,800 in Japan, an increase from ¥58,800 earlier this week. The 128 GB iPad now has a retail price of ¥79,800 compared to its previous price of ¥66,800.
 
Prices of the iPod music player has also increased by as much as ¥6000 while pricing for the iPad mini went up by ¥8000.

Source: Reuters



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Weak yen
By TSS on 5/31/2013 12:26:51 PM , Rating: 5
It went from 78.3 in september to a high of 103.50 a week ago. Sure it's more then 20%, but more then 30% would be more accurate.

Anyways since economic articles don't pass here let me enlighten the crowd about what's been happening to japan. They have engaged in QQE, or quantative quantative easing, putting what the fed is doing to shame. The official comparison is they're doing about 70% of the fed's QE with 33% of the US economy.

Now this wouldn't have to be a problem. Where it not that there's been deflation in japan for 25+ years. Meaning that if you buy a japanese government bond with a 2% yearly deflation, next year your bond is worth 2% more as it will still return the same amount of money agreed upon at purchase. This means the japanese bonds, while having a official yield of ~0%, have a "real" yield of about 2%. As long as there's -2% inflation, or deflation.

So, when japan embarked on a suicidal policy of setting a 2% inflation target (the 30% devaluation in the yen is them basically throwing the kitchen sink at the problem), this ment that the real yield on the japanese government bonds flipped from 2%, to -2%. In other words, anybody holding japanese goverment bonds is losing money, and very fast in bond terms as well.

This has lead to the japanese bond market being halted numerous times over the past 6 months, atleast 15 times that i know of and probably closer to 50. This besides clear actions from the BoJ to buy up as much as they can, as those moves show up quite clear on a chart as moves straight down when everything esle is going straight up. If it wasn't for the circuit breakers, the next financial crisis would've already happened and japan would've blown up more then 20 times already.

The circuit breakers, or artificial limits on when trading shuts down because of the potential of cascades, are only slowing things down. Japanese bond yields have been creeping up each day. The reason why you don't hear anything about europe is because all those japanese bond investors are now jumping ship to italian/spanish/greek bonds, dropping them to crisis-era lows (which makes the problem of inaction here, worse).

The real problem of the japanese bond market is that it's so big. They already use 50% of their tax revenues to service the debt, compared to the US's ~10%. If the interest rate on the 10 year hits 2%, they'll use 100% of tax revenue to service the debt and it's game over. The 10 year recently hit 1%.

Once japan goes, the financial system goes. It won't be instant, don't think it'll be like a bomb going off. First everybody will panic so everybody will pile into the US dollar. japanese bonds where considered the 2nd safest haven in the world, US treasuries are no.1, so when japan goes everybody goes to the US.

This means massive deflation for the US. All commodity prices across the board will drop as the dollar becomes worth more. This'll cause a deflationary spiral as holding onto dollars becomes the sensible thing to do, credit dries up and the economy slips into a deflationary spiral. But it won't end there.

The fed and the government in the US have already shown to do everything possible to avoid a deflationary spiral. So when it looms again, they will print money again, more then ever so before. They will basically do the same thing japan is doing now.

All that money has to go somewhere. Even in a deflationary spiral, it just means that the people who get the money are holding onto it because it's the sensible thing to do. At some point a bottom will be hit, to think something will go on forever is senseless. At that point, all that money on the sidelines will jump back into the fray and inflation will take hold. First a little, then a lot, until hyperinflation is hit.

The US'd already be in that state if the QE done by the fed so far had actually gone into circulation instead of the stock market. Which has now surpassed 2008 highs. Just ask yourself if the economy is as good as it was back in 2008 to see if that's a bubble just waiting to burst or not.

I hate to be a doom caller, but the math simply doesn't add up. The whole system is going to collapse and it won't take another decade. It could, but we've moved past the time of governmental incompetence, past desperation and we've arrived at delusion. The leaders of japan truely belive they can run 2% inflation rates and not have massive sell off's in the bond market. They're beyond reason. It's not like they're playing a violin while watching tokyo burn. They're playing a imaginairy violin while watching tokyo burn.

That's just japan though. Syria has already turned into a proxy war that's inches away from escalating into a hot war between israel (and with it the US), and russia. There's a russian militairy fleet in the medeterrainian, the first time in decadres. I doubt russia would declare open war on israel, but you can never know for sure with putin. If russia doesn't however, iran will.

Don't forget europe though, as stated it's only the suicidal japanese economical policy that's keeping bond rates low. Italian non-performing loans have skyrocketed and are close to hitting 30%, even worse then spain. Spain and greece still have massive unemployment, still climbing each month (go watch vice's documentairy on sisa).

Then there's china, if not plagued by enviromental disasters then with asset bubbles or rampant inflation. Russia's back to the ol' soviet dictatorship.

What i guess i'm trying to say is... why the FUCK do i not see any of that on this site, but as soon as apple lowers or raises their prices, HOLD THE PRESSES! For those of you saying "well apple is a tech company" i point to the FACT that 75%+ of all trades on all stock exchanges in the US are done by robots. Algorithms running from black boxes nearto the exchange's black boxes. Things so technical, the best and brightest in the US are hired to make it even more technical.

Must the end of the world really have a logo on it for it to be newsworthy?




RE: Weak yen
By BRB29 on 5/31/13, Rating: 0
RE: Weak yen
By LBID on 5/31/2013 3:09:00 PM , Rating: 2
There's a lot of very good, interesting information here TSS...thanks for taking the time to post it.


RE: Weak yen
By Solandri on 5/31/2013 7:19:17 PM , Rating: 1
quote:
The real problem of the japanese bond market is that it's so big. They already use 50% of their tax revenues to service the debt, compared to the US's ~10%. If the interest rate on the 10 year hits 2%, they'll use 100% of tax revenue to service the debt and it's game over. The 10 year recently hit 1%.

It's worth noting that Japan's public debt is over 200% their GDP. The U.S. is around 75% while most of the EU is around 100% (closer to U.S. levels if you subtract the PIIGS).
http://en.wikipedia.org/wiki/List_of_countries_by_...
(click on the arrows next to public debt as % of GDP to sort)

If you look at the governments that have been having the most problems - Japan, Greece, Italy, Portugul, Iceland - it's a good counterargument to those who say it's ok to continue racking debt up and up. Japan had been the exception since they've been at over 200% debt levels for over a decade (maybe two). People had been pointing to them as proof that such high debt levels weren't necessarily fatal. But that overlooks the fact that their economy has been pretty much stagnant for two decades. Now that they're actually trying to fix it, the time bomb that is their accrued debt is ticking again.

There's no easy way out of this. You gotta do it the hard way - pay down your debt or get your debtholders to forgive (part of) it.

quote:
It went from 78.3 in september to a high of 103.50 a week ago. Sure it's more then 20%, but more then 30% would be more accurate.

The Yen had been bouncing between 90-110 from the 1990s to mid-2010. Then it gained strength to the 70s, before weakening back to 100 in the last 9 months.

I'd interpret that as the Japanese successfully (to the extent that stabilizing in a bad state can be called successful) managing to pull off a "soft landing" of their economy at 200% debt. They managed to maintain that for nearly two decades, at the cost of zero economic growth. But the recent economic downturn and recovery was enough to knock them off that stable platform, and now they're scrambling to get back atop it.


RE: Weak yen
By Mint on 6/1/2013 12:51:37 PM , Rating: 2
quote:
If you look at the governments that have been having the most problems - Japan, Greece, Italy, Portugul, Iceland - it's a good counterargument to those who say it's ok to continue racking debt up and up.
First of all, Iceland is a useless data point extremely exposed to the financial sector. I could draw a border around 300k people in many different countries, and I'd create places doing far worse or far better.

More importantly, Greece, Italy, and Portugal don't have their own currency, and can't adjust prices nearly as fast as, for example, Canada can in its trade with the US. They thus have to rely on deflation to perform the equivalent of currency devaluation, which is painful, uneven, and also increases the real value of debt.

If you don't have your own currency, debt can make a bad economy worse. But more importantly, it's not the debt itself that has hurt these economies:
http://www.theatlantic.com/business/archive/2013/0...
It's been flawed from the beginning to think this way, and now the very data used to justify austerity has been shown to do the opposite.

Anyway, the Euro was simply a bad idea. The US gets away with a unified currency between states because there is massive redistribution between states (some states get twice as much in federal services/spending than they pay in taxes, and others are almost the opposite) along with freedom of labor. EU member states have an order of magnitude less redistribution, no unified language, less labor movement, etc. Without the stabilizing effect of local currencies, it was a disaster waiting to happen.

What I find hilarious is how Spain and Portugal were conservatives' biggest data points in favor of low income taxes:
http://workforall.net/Anglais/growth_Tax_burden.gi...
Funny how that worked out, isn't it.

quote:
Japan had been the exception since they've been at over 200% debt levels for over a decade (maybe two). People had been pointing to them as proof that such high debt levels weren't necessarily fatal. But that overlooks the fact that their economy has been pretty much stagnant for two decades.
Japan stagnated before they had a big public debt. It's exceedingly clear that the slowdown is what caused it.

Yes, their debt DID show that there's no apocalypse coming with high debt. There is no 90% or 100% threshold. It's all FUD.

What Japan showed is that deflation is a bad thing. If your savings grow in real value despite getting 0% interest when nobody wants to borrow your money, then you have little incentive to help an economy recover with spending or investment.


RE: Weak yen
By FITCamaro on 6/2/2013 1:44:46 PM , Rating: 2
US public debt exceeded GDP last year.


RE: Weak yen
By Mint on 6/1/2013 8:45:30 AM , Rating: 2
quote:
The real problem of the japanese bond market is that it's so big. They already use 50% of their tax revenues to service the debt, compared to the US's ~10%. If the interest rate on the 10 year hits 2%, they'll use 100% of tax revenue to service the debt and it's game over. The 10 year recently hit 1%.
You got it backwards. Going from deflation to inflation decreases the real value of debt. 0% bonds used to give 2% real yield, but when rates go up to 1% they're really becoming -1% real yield, now that QQE is happening.

Think about it: you're saying it's bad for Japan to get of the deflationary spiral and also bad for the US to get into one. That's a contradiction. The reality is that the former is a good thing and the latter is bad.

That interest rates are going up is a very good sign for Japan. Ask yourself this: why would banks be offering 1% when they could be offering 0%? It must mean that banks are making use of savings by lending it out into the economy, which wasn't the case before. Their depreciating dollar is making exports grow.

For a given economic system, you can't increase inflation without increasing general wages by the same amount (unless you fail to make minimum wage follow). That means everyone's debt-to-income ratio will decrease now, including the government's.

There is a shock for as the economy adjusts, but better times are coming for Japan, and the signs are already there.
quote:
First everybody will panic so everybody will pile into the US dollar.
The beauty of nations having their own currency is that even if you trade it, it becomes someone else's problem, who will either get their 1% or . In the end, you can really only use it inside that nation to buy anything useful.

Piling onto the US dollar means nothing more than a yen dropping in value. That's not going to send the US into a deflationary spiral.


RE: Weak yen
By BRB29 on 6/3/2013 8:19:28 AM , Rating: 2
Yes, inflation decreases real value of debt. It's actually a very common tactics every first world country, including US, to pay debt. We really depend on inflation or our economy will tank. I'm talking about a slow 2-3% inflation annually, not 30%.

Inflation lowers real value debt but increases tax revenue. If we calculate everything in real value, we will see that developed nations like US and Japan has been at a standstill in GDP for a long time. If any nation in this global economy does not have inflation, they will actually be at an economic disadvantage.


RE: Weak yen
By Mint on 6/4/2013 12:11:30 PM , Rating: 2
quote:
Yes, inflation decreases real value of debt. It's actually a very common tactics every first world country, including US, to pay debt. We really depend on inflation or our economy will tank. I'm talking about a slow 2-3% inflation annually, not 30%.
Well, in the past predictable inflation was pretty much meaningless, because it's priced into everything from wages to debt (e.g. a 3% loan with 0% inflation paid from wages with 0% growth is identical to a 5% loan in a 2% inflation, 2% wage growth environment).

But today, I agree that it actually helps, because interest rates are below inflation. A non-inflating currency today would be like taking today's world and adding up to 2% interest to everyone's loans, tanking the economy.

Therefore, we can probably benefit from a slightly higher inflation (3-5%). Short term rates are bumping into the 0% floor (and this is in turn probably keeping medium term rates higher than they should be), meaning people are getting artificial value retention for saving as opposed to spending/investing.

That's not how you run an optimal economy. Money should only keep its value if something useful is being done with it.


RE: Weak yen
By FITCamaro on 6/2/2013 1:48:07 PM , Rating: 2
Great post.


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