Tuesday, November 24, 2009

Japan Musings

What is going on in Japan. The currency keeps going up but the stock market keeps going down?? Something doesn't make sense there. For one, if the stock market is going down, that typically means money is flowing away from Japan. Well if that were occurring, shouldn't the Japanese currency be going down not up? Sell yen and buy currency x? That would be intuitive but that is not what is happening. A couple of thoughts. I have read that Japanese companies are repatriating there money back into Japan. Since alot of facilities of Japanese companies are overseas, they are making money overseas. Well they are bringing back money to Japan. This means they are selling currency x and buying yen which is currently overshadowing the exit of investors. Of course this puts more pressure on exports, the lifeblood of the Japanese economy.

There is an additional problem with the Japanese stock market going down. The banks in Japan own alot of equities. They also count it towards capital. This is one of the problems from Japan's bubble peak in 1989 that never got resolved. So the equity markets decline, is at the same time weakening the banking system.

It all feeds on each other though. U.S. dollar goes down, U.S. stock market goes up with the corollary that the Japanese Yen goes up with the Japan stock market going down. This cannot go on indefinitely but the torquing, the pressure continues to build.

Interestingly, last night China was down almost 4%. China topped out in August, had a big sell off and was getting close to its highs for the year. If it continues down you could start hearing alot of chatter about a double top.

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