You are here: Home » Archives for Japan

GLOBAL ECONOMICS AND POLITICS

Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.

Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.

Subscribe to Leo Haviland’s BLOG to receive updates and new marketplace essays.

RSS

Follow @LeoHaviland

View Leo Haviland’s profile

Monday, December 1st, 2014

WHATEVER IT TAKES: RECENT EUROZONE AND JAPANESE ADVENTURES © Leo Haviland December 1, 2014

The Euro FX and Japanese Yen for several months have been weakening together, both against the US dollar and on an effective exchange rate basis. This currency relationship and bear trend will continue. Despite the Eurozone’s and Japan’s brave quests to create sufficient inflation (escape deflation), their success probably will be limited; inflation and longer term government interest rates probably will not sustain significant increases. However, even if substantial currency depreciation and massive money printing manage to achieve an inflation goal (and higher interest rates), they likely will not generate sustained economic growth.

Given that both the Eurozone and Japan suffer from low growth and deflationary challenges and fears, is weakness in the Euro FX connected with (encouraging that of) the Japanese Yen? Is the Yen’s swoon helping to depreciate the Euro FX? Are Japan and the Eurozone (and other nations) engaged in competitive devaluations (currency wars) to bolster growth?

One sign of the obstacles facing the Eurozone and Japan in their quest to boost inflation (and generate higher interest rates) is the recent behavior of the UST 10 year government note. American GDP recently has been robust, rising at an annual rate of 4.6 percent in 2Q14 and 3.9pc in 3Q14. However, the UST 10 year yield around 2.20pc remains well beneath its 1/2/14 top at 3.05pc. Admittedly the UST yield bounced up from the 1.86pc low of 10/15/14. But even since that mid-October 2014 depth, yields traveled up to only around 2.40pc, never piercing the important resistance around that level. The failure of UST yields to rally may signal future mediocre US (and worldwide) economic growth since yields generally advance during recovery (or hope of one).

Take the broad Goldman Sachs Commodity Index (GSCI) as a benchmark for commodities “in general”. It collapsed, of course aided by price dives in the petroleum complex, from 6/23/14’s interim high around 673 to under 520 recently. If sustained, this bloody price retreat will cut many statistical measures of inflation (and perhaps reduce inflation expectations). Thus it may encourage European and Japanese (and other) policy makers to embark on especially accommodative monetary policies. For example, the ECB may decide it has more need (justification) to quickly engage in massive QE, perhaps even by sovereign debt buying.

However, this GSCI weakness also may indicate underlying and ongoing risks to global economic growth as well as the difficulty of generating sufficient inflation in general. Moreover, sustained declines in petroleum prices may create crises in some producing nations that in turn spill over into other nations. For example, think of Russia (the ruble has moved over 50 versus the dollar), Nigeria, and Venezuela.

FOLLOW THE LINK BELOW to download this article as a PDF file.
Whatever It Takes- Recent Eurozone and Japanese Adventures (12-1-14)
Charts- FX and 10 Yr Govt Note of Eurozone and Japan (12-1-14, for essay Whatever It Takes)

Monday, June 4th, 2012

2008 REVISITED: JAPANESE YEN STRENGTH, GLOBAL ECONOMIC WEAKNESS (c) Leo Haviland June 4, 2012

The long running bull march in the Japanese Yen from early summer 2007 to the current time generally coincides with a continuing worldwide economic crisis. The Yen’s robust strength mirrors the failure by central bankers and politicians around the globe to cure the lamentable financial ills. National policies often differ. The international guardians frequently coordinate their rescue and stimulus programs. Yet measures such as deficit spending, money printing, efforts to keep government interest rates near the floor, and struggles to maneuver currency rates merely have patched and postponed severe problems, not genuinely repaired them. Worrisome debt and leverage issues revealed in 2007-08 lurk on in various forms.

The rally in the Japanese Yen on an effective exchange rate basis since around July 2011 warns that an acceleration of the worldwide crisis, as in mid-2008, may be underway or very near to commencing. Significantly, the climb in the Yen cross rate versus the US dollar since mid- March 2012 also fits the ongoing international economic weakness story. Recall that as the world economy deteriorated more and more quickly around mid-2008, not only did the US dollar rally on a broad real trade-weighted basis, but also the dollar weakened relative to the Yen. The strong dollar equals weak stocks (and weak commodities in general), weak dollar equals strong equities (and bullish commodities) chant remains popular.

The world and perspectives on it are not immutable, so 2012 does not precisely duplicate 2008. Yet given the experience of 2008, what does a rally by the dollar in general, if accompanied by a rally in the Yen (effective exchange rate), and especially if the Yen also marched higher against the dollar on a cross basis, portend? This would hint that the disturbing international crisis is in the process of becoming more fearful. And since March 2012, that seems to be what has been happening.

The current dangerous situation in the ongoing worldwide economic crisis, if it further worsens (and it probably will worsen to some extent, even if the deterioration is not nearly as severe as in 2008), will be sufficiently severe to induce policy makers around the globe to take further substantial steps in their struggles to provide long-lasting remedies. Perhaps such actions by central bankers and political leaders may occur relatively soon. These may issue from individual nations in somewhat piecemeal fashion. Yet there is a substantial chance that intervention will be relatively coordinated, especially if an encore of second half 2008 looks more and more to be underway.

But in the meantime, for the near term, the Japanese Yen probably will keep rallying on an effective exchange rate basis; it probably will breach the 1/16/12 daily low of 187.5. The Yen likely will retest the Y75 level against the dollar. However, the US dollar (TWD) will remain fairly strong. The bear trend in worldwide equities and commodities in general therefore probably is not over. Renewed sustained weakness in both the Yen and the dollar would indicate an easing of the current stage of the global crisis.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.
2008 Revisited- Japanese Yen Strength, Global Economic Weakness (6-4-12)

Tuesday, October 18th, 2011

PERIPHERAL VISIONS- A LOOK AT “OTHER” ASIA AND MEXICO © Leo Haviland, October 18, 2011

Most financial watchers of the global scene nowadays focus on headlines, policies, and actions from the United States, Europe, Japan, and the BRICs (Brazil, Russia, India, and especially China). Sometimes an observer offers a sideways glance at other nations, especially if their economic interest directly ties into with what’s occurring in or related to that land. As petroleum obviously is important to many, Saudi Arabia captures attention and attracts analysis from various commodity, stock, interest rate, and currency watchers. Or, some commodity traders monitor currency and equity levels and trends of and political situations within key commodity producing nations. They stare not only at Saudi Arabia (and other Middle Eastern states), Brazil, and Russia, but also at Australia, Canada, Chile, and South Africa.

Compared to China and Japan, other Asian countries such as South Korea, Thailand, Indonesia, and Malaysia receive much less attention these days from those in international galleries. Yes, these four “other” Asian nations have smaller GDPs than China and Japan. Yet the Asian financial crisis of 1997-98 involved these four “other” Asian nations. Mexico, though a major trading partner of America, receives rather little mainstream press outside of immigration issues and talk of its violent drug wars. But recall Mexico’s economic (“peso” devaluation) crisis of 1994-95. South Korea, Thailand, Indonesia, Malaysia, and Mexico then and now significantly interrelate- admittedly in varying fashions and degrees- with the rest of the global theater. So paying a bit of attention these days to these five countries identifies not only risks facing them, but also their economic performance relative to other key nations such as the United States. In addition, a survey of their equities and currencies offers perspectives on other stock marketplace and foreign exchange trends, and thus on the current worldwide financial situation.

However, America’s economic and political behavior and policies has helped to “create a situation for itself” that echoes the earlier crises in Asia and Mexico. Ironically, whereas once America helped to rescue the economic world, it now helps to endanger it. As an indication of this, compare the current and near-term United States situation with that of four Asian financial crisis nations and Mexico.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.

Peripheral Visions – A Look at Other Asia and Mexico (10-18-11)

Monday, August 15th, 2011

Burning passion for another is not the only love which makes us shake. When fear of losing substantial sums creeps up on numerous money lovers in intertwined financial playgrounds, both the players and their marketplaces can quiver violently.

Many pundits define a bear marketplace as a 20 percent slide from a noteworthy price top. Though the S+P 500 nosedived about 20 percent from its 5/2/11 high around 1371 to its 8/9/11 low near 1100, it then rallied sharply. On 8/9/11, the United States 10 year Treasury note touched yield lows of just over two percent. This matched the bottom achieved on 12/18/08 during the previous “flight to quality” panic in the (still-running) economic crisis that erupted in 2007. Given this equity and debt support, will things calm down much? No. The economic and political scenery has not sufficiently changed. Relationships within and between various financial arenas and their variables probably will vary to some extent as time passes, but the current entangled key financial factors will remain powerful, volatile, and intertwined. Although there will be occasional intermissions, turmoil in and between key equity, interest rate, currency, and commodity theaters therefore will not cease anytime soon.

Why place blind faith in the 2013 low rate policy, for the Fed confesses it changes its viewpoints? In addition, consider the Fed’s policy track record relative to its “original” expectations. Economic growth has been considerably lower than the Fed “had expected”. The Fed “now expects” a slower pace of recovery. Just as the Fed this month adjusted its policy by speaking of low Fed Funds through mid-2013, it eventually may alter its present course. Historians recall that the Fed’s quantitative easing floods likewise represented policy changes due to marketplace developments. Besides, how accurate were the Fed’s economic forecasts in 2007 and 2008, at the dawn and during the early stages of the acceleration of the economic crisis? So as Fed expectations change, so may its actions, whether on rates, quantitative easing, or otherwise.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.

Furious Financial Fluctuations (8-15-11)

Marketplace Essays

Leo Haviland