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Turning Japanese


Insights from Mr. Practical, ripped from The Exchange.


Editor's note: In his December 17 column, Alchemy, Mr. Practical explained his reasons for moving to Japan and changing his dollar-denominated assets into yen-denominated assets. Unsurprisingly, the article fueled a compelling community discourse on The Exchange. Some highlights of that discussion have been reposted here.

Minyan Steve: Why did you need to move to Japan to convert all of your dollar-denominated assets to yen-denominated assets? You could do the same while living in America. If you moved to Japan because you would rather live there, it is a different story, but not the reason you give.

Mr. Practical: My friend, you should read some of [Federal Reserve Chairman Ben] Bernanke's papers. One solution the Fed came up with in case of dollar collapse is a 2-tiered currency system where dollars in the US cannot go outside and dollars outside cannot come in. I am not saying this will happen, but it has been penned by the Federal Reserve, so cannot be ignored.

Minyan Sam: I'm just an ordinary person out here and I would like an explanation as to why everyone seems to think that the Japanese yen is "the" currency to be in. I certainly understand the mess the US is in, but how much better off is Japan? From what I've read, Japan has still not recovered from their debt orgy 10 or so years ago. Didn't they do the same thing that the Fed is doing now to prevent the failure of their financial system? Japan has a problem with their aging population as well, and they are far more dependent on commodity imports than we are. So my question is, why is being invested in the yen perceived as being the best way to protect the value of your money if it is now denominated in dollars?

Mr. Practical: Very simple. Japan has the highest level of savings pool relative to private debt. Their public debt is horrendous, but what is happening over time -- and why the yen is appreciating -- is because Japanese savers are bringing those savings back to Japan. When I feel that has been done, the rally in yen should be about over.

Minyan Bacan: This just came from Terry Woo's post:

The yen dropped against the euro -- and fell from a 13-year high against the dollar -- after Japanese authorities signaled they may intervene in the currency markets for the first time in 4 years. According to Bloomberg, Japanese Finance Minister Shoichi Nakagawa said he's "keenly watching" the foreign-exchange markets, and, while it's not definite, may try to limit the yen's appreciation.

The last time Japan intervened in the currency markets, it sold a record 20.4 trillion in 2003 and 14.8 trillion in 2004.

Nothing like a little government intervention to interfere with your travel plans.

Mr. Practical: There is desire by all central banks to devalue their currency. No surprise. The euro (actually it's the Swiss franc) has been much, much stronger versus the dollar than any major currency over the last week or so. Two possible reasons: [President of the European Central Bank Jean-Claude] Trichet saying he will not cut rates (probably not true) and Europeans are large investors in US. So when the 2-day Fed meeting was rumored to be a dollar talk-down, Europeans may have bolted out of US investments back into the euro fast.

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