Currency and Fluctuation

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Amid the bustle of senior colleagues close to the daily, Abe claims that the yen is "worth the price" or "the BJP has more options", a sharp decline in the yen. Claiming voices will cause movement. The re-emergence of the 1997 Asian financial crisis, or doomsday, suggests that a rise in nominal interest rates will create a financial crisis in Japan, or that our favorite bear, Kelly Bass, believes Japan is on the road to debt. It is very easy to be confused. Is the hack going on? The closer you approach this situation, the louder your voice will be. Debates about matters such as changes in the law of the central bank, the purchase of foreign bonds, and so on are all the time in the headlines, though they are quickly forgotten. In their article, I will try to explain (hopefully) more important points in the whole process of reducing the value of the japanese currency. There may be good opportunities to increase or decrease positions with noise every day, but I will try to give my general idea of ​​where the whole thing is going.

First Stage: Japan moves, market doubts

For some reason (which is not the main focus here), in the last few months of 2012, Japan found a political desire to start reducing the value of the yen. Market participants and educators complained of BJ / Japan's willingness to take new initiatives. The BJP was in favor of the admirers, suspected that it would work. Experts who doubted the effectiveness of the BJP's functions were largely thinking of the ancient pattern where currency intervention was deemed useless. This view of the free market is a social norm, that is, the United States should not be involved in curtailing the value of currency through overpatting currency printing in the event of a decline in competitive value, so such measures should be discredited. General Chat Chat Lounge there is no logical basis to the belief that many experts say that the BJP's actions will be ineffective: if a nation hides too much money to bring down the exchange rate, it is certainly a task. It has been discouraged and defamed. This seems more "wrong". But it exposed the essence of the first phase: the Japanese participants' perceptions of unconditional, knee jerk-protected asylum-seeking assets were severely altered. This was enough to send USDJPY from 78 to 90 ~ 100. Now the participants have learned that the yen doesn't just stay on top, sprinkled with ineffective interruptions with spikes. The yen can actually stay in the city for six months. Lesson: Don't Buy Yin at Knee Stroke Now

Second Stage: Market doubts, Japan doesn't move

However, the doubts raised by the market really have a strong basis. If the nominal interest rate increases, it increases in terms of funding costs for national loans, and every 1% increase in financing costs equals 25% of the tax revenue.  Although high inflation will gradually erode the national debt, the short-term financial effects will be catastrophic. If the government goes to pay interest on the national debt, how does the government fund it? JGB is mostly owned by Japanese banks, insurance companies and pension funds. The massive reduction in the prices of JGBs will probably cause huge losses to these companies. How will they compete? This scenario seems so absurd that once market participants are well aware of the implications of 2 percent CPI in Japan, they will expect Japan to take no further steps. And they are probably fine. Japan will do more to keep the yen at its proper level and to intimidate occasional speculators. As long as BoJ will 1) keep people guessing when it will move and 2) condition a lot of people on the continuation of the trend and sell the bounce, it can prevent speculation from being relatively low cost. Ironically, it is often missed that before the April 3 commitment to quality and quantitative easing, Abe said that the 2 percent inflation target "imposed on the Bank of Japan." He might not arrive within two years. “Perhaps the Abbeys were staring at those who read between the lines that affiliation was a source of trouble for most yen bulls. So in the second step: participants will realize that the land promised by the BOJ who values ​​the yen really gets a disaster if Japan gets there, the whole process of the BJJ. US $ / JPY turns into a cat and mouse game between BoJ and the Yen bulls. However, the economic benefit from the more reasonably priced yen is real and Japan is enjoying these benefits.

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