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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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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.


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