Monday, August 16, 2010

Super-Strong Yen in 2010: Bane for Japanese Exporters?

As one of the primary investment safe-havens, are currency speculators inadvertently creating a super-strong yen at the expense of high-quality Japanese exports?

By: Ringo Bones

The world’s currency speculators and hedge fund managers had been as of late using yet again the Japanese yen as a safe-haven investment, a move that could ultimately make the currency super-strong. Add to that the Mainland Chinese financial firms in a current buying frenzy of 5 billion US dollars worth of Japanese sovereign debt and one could wonder if this could spell a death knell to Japanese exporters – especially one specializing in the manufacture of premium-quality specialist products.

In the Far East, even though Mainland China have already matched – even exceeded - the production capabilities of Japanese export firms, China is still several years away from equalling Japan in quality terms. When it comes to manufacturing premium specialist products – as in scientific and precision engineering gear, even hi-fi - is still a skill that China has yet to climb a steep learning curve to match the Japanese and American and even German competition.

Never mind the American and German expertise in this field because in the ASEAN region, Japanese specialist products have already carved themselves a niche when it comes to reasonably-priced alternatives to American and German products of comparable quality. A super-strong yen also places most export firms at a disadvantage. Making their high-quality but reasonably priced products less competitive overseas when competing with cheap and wonky Mainland Chinese produced goods. A lower profit margin resting from a super-strong yen could drive a significant number of Japanese exporting firms into bankruptcy.

Will There Be A Double-Dip Recession in 2010?

Despite the pessimistic – but logical – economic outlook harbored by the US FED Chairman and US Treasury Secretary, will there be a double-dip recession in the second half of 2010?

By: Ringo Bones

Our global financial markets are indeed confidence driven. Look no further than the recent pessimistic – but logical – economic outlook of US Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Timothy Geithner has recently sent various stock markets across the globe in an unprecedented sell-off. Maybe it might just be the current dismal jobs market in the US is somewhat hard to overlook, but still – like a celebrity diagnosed with a manic-depressive disorder – our still recovering global financial market still needs constant reassurance just to maintain its bottom line. But a more pressing concern is that will there be a double-dip recession in the US and elsewhere around the world during the second half of 2010?

Despite the pessimistic outlook of the United States’ financial top brass, most of the world’s leading economists are still confident that the occurrence of a global double-dip recession in the second half of 2010 is still very unlikely. A prolonged economic recovery slowdown perhaps, but still, there are already historic precedents that a global double-dip recession might not happen at all during the second half of 2010. And the following is the oft used explanation cited by leading economists.

Even though our current global financial woes was primarily caused by the subprime mortgage crisis that started in the US near the end of July 2007 that was inadvertently allowed to spread around the world, we already have a handle on how to deal with such “financial emergency”. Though now only of academic interest to economists, the “mini recession” or “growth recession” of 1966-1967 exposed the American people to a credit crunch that curtailed housing prices and shaved 20% off stock prices. Many economists see our slowed global recovery as a mere growth recession it follows the textbook definition of such.

As in when the production output and employment growth for half a year or more are significantly less than the average trend or rate of growth – as what is happening right now in America – an economy is said to be in a growth recession, even if the actual growth rates never turn negative. But is it yet too early to panic?

The signs that seem to point to the inevitability of a double-dip recession in 2010 – the lagging jobs creation and dismal manufacturing growth in the US – can be hard to deny. Worse still, a lack of “organic growth” instead of just the “artificial” growth due to the economic stimulus packages could inevitably lead to the fragile global economic recovery back into recession.

While America’s middle class has recently become the country’s nouveau poor due to mortgage foreclosures that drove a growing number of them into bankruptcy and the UK government becoming too obsessed with balancing between economic growth and recession, Germany had recently experienced its greatest quarterly GDP growth rate yet since the 1991 reunification. An economic growth that made the Eurozone countries outpaced the United States and strengthened the euro once again.

Another reason why almost all economists are still optimistic enough to predict that a double-dip recession will probably never happen for the rest of 2010 because the financial reforms already in place to make sure the global credit crunch of 2008 will not happen again. And yet almost all of them say that a bullish economic recovery is still far off into the future.

Given that the global economy is very much confidence driven and can be compared to a manic-depressive celebrity that needs constant reassurance just to function socially. Then it is still safe to say that a double-dip recession is still and has always been just around the corner. If not in 2010, there’s always next year to worry about.