November 23, 2009

Blowing Bubbles

The Dollars demise is well documented, and there are many sound reasons to agree with the numerous bloggers/pundits who call for the demise of the Greenback, not the least of which is the massive accumulation of debt on the US balance sheet post Bear Sterns. The Dollar has fallen impressively vs. virtually all other fungible instruments, but one stands out in particular, and that would be the Japanese Yen.

I say this because the ascension of the yen ( ~ 89 to 1 US$) is not driven by inflationary prospects in Japan (Unlike Australia). Nor is it driven by assets or balance sheet ( like Canada or Norway).
In fact, Japan has none of these attributes, and it's a net exporter to boot.

No, what appears to be driving Yen appreciation is the "switch" from yen to dollar as the worlds funding currency. Translation, borrowers are switching from Yen to Dollar to fund the massive carry trades that every market commentator is crowing about.

So where does that leave the Yen? extremely overvalued and a huge problem for Japan's trade dependent economy.

Caveat Emptor.

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