Japan understands the post-ww2 economic world order very well. There is one first tier exceptional nation that gets a huge dividend from having the reserve currency but must spend a large chunk of it to militarily enforce the world order.
Japan, along with western Europe, is a second tier nation in this order. They live well enough and enjoy most of the same benefits without the expense of policing the world. Japan would rather abide by the rules and wishes of the US than risk getting demoted down a tier. It accepts its place in this hierarchy because after all its a fairly prestigious place.
Would the US now all of a sudden allow Japan to grow again? Yes, because Japan is a dependable loyal ally and the US needs a counterweight to China.
Further bolstering this thesis is the fact that Japan has decided to beef up their military significantly over the last 5 years in response to the china threat, particularly their Navy. Japan is moving from timid self defense to being able to project power. I like it.
Conspiracy, hmmm, but the thesis is sound. I too think that the issue is very much one of mindset. Japan rebuilt itself from razed rubble to the world's second largest economy, inside 25 years. The leaders of that generation, with some justification, felt therefore that they had all the answers, and so did the rest of the nation. While that generation had influence or presence, it was virtually impossible to chart any new or novel course that did not align with their views and methods. However, as the Showa generation finally dies off (literally), the post-bubble generation is taking over, and THEIR life learning is "we must do things differently to survive". So yes, I think the extraordinary pace and range of change in Japan at the moment is very much a conscious choice, but it's driven by a combination of history and demographics.
I don’t think Japan had a lot of choice in the Plaza Accord agreement other than to say they were going to go Communist. The US gave them unprecedented access to our markets as a way to make them stronger to fight off the Soviets. At a certain point as they approached US level GDP that became ridiculous and the US wasn’t going to allow it to continue. The political pressure here was too great. I think Pettis and Klein really got this dynamic right in Trade Wars are Class Wars. But it ended up being a pretty good outcome for both sides. The average Japanese person’s standard of living has improved a lot faster after the bubble burst in the late 1980s/early 1990s when all there savings weren’t being plowed back into inflated assets and malinvestment so from that perspective I don’t think they were super motivated to change the trend.
The Japanese government has been much better at keeping corporate power diffuse. Despite a smaller market, they have tried to have 4 or more mobile operators. And with the semi market, willing to allow their technology to leak to other countries. Certainly more competition has kept prices lower in Japan - and I would normally trade that by being long yen - but that has not worked in recent times.
It's generally industry convention to have the base currency first, but it's not always denominated that way. For whatever reason, a lot of economic papers do the inverse, so you just have to double check that you're reading it correctly.
My point is not a matter of convention. JPY/USD is the units of USD that one unit of JPY is worth. This is not a matter of convention but of definition. But the chart prices show USD/JPY units. There is a conflict between the convention used and chart prices.
Yes, and I'm saying that there isn't a strict definition for how currency pairs are denominated in regards to which side the base currency is. The CFA curriculum, for example, teaches currency theory with the base currency being on the bottom of the pair ie price currency/base currency. This is also how currencies are denominated in a lot of economic papers. This is the reverse of how most FX exchanges quote currencies (base currency/price currency) and how you are thinking of it. CFA curriculum would have the pair labeled how it is shown in the chart (JPY/USD), but FX quotes would have it as USD/JPY as you suggest. They would both show the exact same chart, but they would be using different quote conventions. You just have to be aware of the convention being used.
Sorry, but you seem to dispute forex rates conventions and related prices. Of course, you can choose your convention, although JPY/USD is rare, and I have not seen it used for years. But if you choose this uncommon convention, then prices on the chart must be inverted. Otherwise, the convention used and the chart prices are inconsistent. You should be able to understand this much: JPY/USD is the units of USD that one unit of JPY is worth. Or are you also disputing this? In financial markets, consistency is a key.
I am on the road, so I just lifted this chart from the internet. We all agree the plaza accord saw the yen appreciate - correct? I will replace it with a Bloomberg chart when I get home.
I'm not disputing forex rate convention. I'm saying that your last statement, "consistency is key" is just wishful thinking. Unfortunately, there is a lot of inconsistency with how currencies are presented. If you only look at forex rates, you would only know base currency/price currency convention, but if you read economic papers, they often have the convention reversed to price currency/base currency. The chart Russell posted is likely from an economics based source rather than a markets based source. You're not the only person that has questioned this inconsistency. You can see a discussion about it here: https://www.analystforum.com/t/fx-quotes-cfa-vs-real-life/111014
There is no wishful thinking. You are simply wrong. You keep avoiding the main point:
"You should be able to understand this much: JPY/USD is the units of USD that one unit of JPY is worth. Or are you also disputing this? In financial markets, consistency is a key."
You seem not to understand forex rates, unfortunately. Why you are insisting is puzzling.
I think in Japan they often issue funky products with many features just to learn something. Just to learn something has big value i this culture. It's not just about $$.
Was that a PHS phone you had? I remember those. I had one but to be honest the poor range and not being able to move between base stations quickly made it redundant.
I actually has Matushita mobile phone - but could it looked a lot like this - so choose this photo…. PHS was for the real hardcore tech guys who wanted signals on the underground from memory!
The idea definitely makes a lot of sense. I know you're favorable on the Japanese banks. Do you think they'll be the best way to capture a new Japanese bull market if that's what we see? Or do you see them as more of an idiosyncratic way to capture the pro-labor theme? Not sure if you saw GMO's recent Japan pitch, but they argue that small cap value in Japan is the place to be. Does that make sense to you? You can find their article here- https://www.gmo.com/americas/research-library/the-four-4s-behind-the-compelling-opportunity-in-japan-equities_whitepaper/
My guess is that just like in the US, share buybacks will be the big driver. Banks should do well, as long as they can maintain their deposit franchise.
Japan understands the post-ww2 economic world order very well. There is one first tier exceptional nation that gets a huge dividend from having the reserve currency but must spend a large chunk of it to militarily enforce the world order.
Japan, along with western Europe, is a second tier nation in this order. They live well enough and enjoy most of the same benefits without the expense of policing the world. Japan would rather abide by the rules and wishes of the US than risk getting demoted down a tier. It accepts its place in this hierarchy because after all its a fairly prestigious place.
Would the US now all of a sudden allow Japan to grow again? Yes, because Japan is a dependable loyal ally and the US needs a counterweight to China.
Yes - politically Japan looks very different…. Industry policy is a cool again, and Japan is good at industry policy…. Or was anyway
Further bolstering this thesis is the fact that Japan has decided to beef up their military significantly over the last 5 years in response to the china threat, particularly their Navy. Japan is moving from timid self defense to being able to project power. I like it.
Conspiracy, hmmm, but the thesis is sound. I too think that the issue is very much one of mindset. Japan rebuilt itself from razed rubble to the world's second largest economy, inside 25 years. The leaders of that generation, with some justification, felt therefore that they had all the answers, and so did the rest of the nation. While that generation had influence or presence, it was virtually impossible to chart any new or novel course that did not align with their views and methods. However, as the Showa generation finally dies off (literally), the post-bubble generation is taking over, and THEIR life learning is "we must do things differently to survive". So yes, I think the extraordinary pace and range of change in Japan at the moment is very much a conscious choice, but it's driven by a combination of history and demographics.
I don’t think Japan had a lot of choice in the Plaza Accord agreement other than to say they were going to go Communist. The US gave them unprecedented access to our markets as a way to make them stronger to fight off the Soviets. At a certain point as they approached US level GDP that became ridiculous and the US wasn’t going to allow it to continue. The political pressure here was too great. I think Pettis and Klein really got this dynamic right in Trade Wars are Class Wars. But it ended up being a pretty good outcome for both sides. The average Japanese person’s standard of living has improved a lot faster after the bubble burst in the late 1980s/early 1990s when all there savings weren’t being plowed back into inflated assets and malinvestment so from that perspective I don’t think they were super motivated to change the trend.
The Japanese government has been much better at keeping corporate power diffuse. Despite a smaller market, they have tried to have 4 or more mobile operators. And with the semi market, willing to allow their technology to leak to other countries. Certainly more competition has kept prices lower in Japan - and I would normally trade that by being long yen - but that has not worked in recent times.
Oh and Wall st just had to wait 10 years to sell out main st to the Chinese.
Shouldn't the Y-axis of the Yen chart be USD/JPY instead of JPY/USD?
It's generally industry convention to have the base currency first, but it's not always denominated that way. For whatever reason, a lot of economic papers do the inverse, so you just have to double check that you're reading it correctly.
My point is not a matter of convention. JPY/USD is the units of USD that one unit of JPY is worth. This is not a matter of convention but of definition. But the chart prices show USD/JPY units. There is a conflict between the convention used and chart prices.
Yes, and I'm saying that there isn't a strict definition for how currency pairs are denominated in regards to which side the base currency is. The CFA curriculum, for example, teaches currency theory with the base currency being on the bottom of the pair ie price currency/base currency. This is also how currencies are denominated in a lot of economic papers. This is the reverse of how most FX exchanges quote currencies (base currency/price currency) and how you are thinking of it. CFA curriculum would have the pair labeled how it is shown in the chart (JPY/USD), but FX quotes would have it as USD/JPY as you suggest. They would both show the exact same chart, but they would be using different quote conventions. You just have to be aware of the convention being used.
Sorry, but you seem to dispute forex rates conventions and related prices. Of course, you can choose your convention, although JPY/USD is rare, and I have not seen it used for years. But if you choose this uncommon convention, then prices on the chart must be inverted. Otherwise, the convention used and the chart prices are inconsistent. You should be able to understand this much: JPY/USD is the units of USD that one unit of JPY is worth. Or are you also disputing this? In financial markets, consistency is a key.
I am on the road, so I just lifted this chart from the internet. We all agree the plaza accord saw the yen appreciate - correct? I will replace it with a Bloomberg chart when I get home.
Yes, we agree. The accord was driven by US multinationals and Caterpillar played a key role, due to exports ofc. The accord backfired big time.
I'm not disputing forex rate convention. I'm saying that your last statement, "consistency is key" is just wishful thinking. Unfortunately, there is a lot of inconsistency with how currencies are presented. If you only look at forex rates, you would only know base currency/price currency convention, but if you read economic papers, they often have the convention reversed to price currency/base currency. The chart Russell posted is likely from an economics based source rather than a markets based source. You're not the only person that has questioned this inconsistency. You can see a discussion about it here: https://www.analystforum.com/t/fx-quotes-cfa-vs-real-life/111014
There is no wishful thinking. You are simply wrong. You keep avoiding the main point:
"You should be able to understand this much: JPY/USD is the units of USD that one unit of JPY is worth. Or are you also disputing this? In financial markets, consistency is a key."
You seem not to understand forex rates, unfortunately. Why you are insisting is puzzling.
I think in Japan they often issue funky products with many features just to learn something. Just to learn something has big value i this culture. It's not just about $$.
Was that a PHS phone you had? I remember those. I had one but to be honest the poor range and not being able to move between base stations quickly made it redundant.
I actually has Matushita mobile phone - but could it looked a lot like this - so choose this photo…. PHS was for the real hardcore tech guys who wanted signals on the underground from memory!
The idea definitely makes a lot of sense. I know you're favorable on the Japanese banks. Do you think they'll be the best way to capture a new Japanese bull market if that's what we see? Or do you see them as more of an idiosyncratic way to capture the pro-labor theme? Not sure if you saw GMO's recent Japan pitch, but they argue that small cap value in Japan is the place to be. Does that make sense to you? You can find their article here- https://www.gmo.com/americas/research-library/the-four-4s-behind-the-compelling-opportunity-in-japan-equities_whitepaper/
Thanks
My guess is that just like in the US, share buybacks will be the big driver. Banks should do well, as long as they can maintain their deposit franchise.