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.


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JAPAN: FINANCIAL CLIFFS AND CURVES © Leo Haviland November 26, 2012

The major bull charge by the Japanese 10 year government bond (JGB) to lower yields probably ended in late July 2012, or will do so soon. The Japanese Yen’s long run bull trend (effective exchange rate basis, Bank of England data) likewise probably ceased in midsummer 2012.

Four significant inflationary variables have or likely will entangle with the massive Japanese easing to date. First, major central banks around the world via various methods have engaged in extravagant easing. Consider the money printing (QE1, 2, 3), low interest rates, and other accommodative weapons of the United States Federal Reserve. The economic wizards at the Fed have heralded they will not change to a tightening course anytime soon. Don’t forget the European Central Bank’s gradual even if roundabout surrender to easy money principles (especially over the last year). Recall the generous central bankers of China, the United Kingdom, and Switzerland. In the interconnected global economy, the more widespread and sustained the money printing and related policies, the more likely that there eventually will be upward price moves in consumer prices (and similar measures) as well as interest rate increases.

A more specific focus on the Japanese situation reveals the three other considerations. For starters, the Japanese business community (exporters especially) has become extremely upset (not merely worried) by the Yen’s sustained strength. This dismay increased due to a recent noteworthy GDP slump. Business interests (Japan, Inc.) significantly influence Japanese political policies. Second, Japan likely will enshrine a new governing political party after its December 2012 elections. These incoming political leaders apparently seek an even easier monetary policy than presently exists.

The third relates to the towering Japanese government debt and ongoing substantial budget deficits. Most political pundits and marketplace mavens bemoan the looming United States fiscal cliff. Japan, unlike America, wins praise as being a nation of savers (creditors) rather than debtors (borrowers). However, the Japanese government, unlike its citizens, does not incarnate thriftiness.

The current and medium term Japanese fiscal outlook, even without a change in government policies, is no cause for complacency. The Japanese political (economic) establishment, regardless of party, engages in brinkmanship, for it has shown little inclination to subdue that substantial deficit spending and massive and growing government debt. Compare the United States awesome near term and long run federal debt vista. Thus Japan probably already is fairly close to the border of a fiscal crisis. Read the rest of this entry »