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.
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After the Japanese yen reached a 15-year high back in Tuesday, September 14, 2010, the Bank of Japan finally intervened to lower its value. Yoshihiko Noda - Japan's finance minister - as of Wednesday, September 15, 2010 decided that the currency intervention was a necessity in order to protect Japan's export firms. While a significant number of the world's leading economists had questions over the long-term sustainability of such currency intervention, others have cried foul over the Japanese Government's attempt at a "legalized protectionism" - which the Japanese Government claims is just "mere" competitive currency devaluation. Should we all be blaming Mainland China? After all, they recently got involved in a recent speculative frenzy over the Japanese yen.
The last time the Japanese government did a currency intervention of the yen was back in March 2004. Currency intervention is where a country or government sells its own currency and buys another one in order to achieve competitive devaluation in order to keep its own export industry competitive.
As of late, US Treasury Secretary Timothy Geithner had recently criticized the Beijing Government because they had not taken significant steps to appreciate the value of the Chinese yuan despite of it being supposedly free-floating.
Would the sudden rise or appreciation in the value of the Chinese yuan destabilize the global economy? After all, we are all "addicted" to cheap goods manufactured in Mainland China despite of whether these goods are ethically manufactured. Maybe US Treasury Secretary Geithner is just trying to act "useful".
Thanks for your concern Letiche on whether some "cheap" goods are ethically produced. And a suddenly high-valued Chinese yuan will probably overwhelm our global economy addicted to cheaply-manufactured Chinese goods. On US Treasury Secretary Geithner placing the blame squarely on an undervalued Chinese yuan, he's probably doing anything to avoid an overwhelming US Republican Party victory this November 2010 mid-term elections - or being called a mere "armchair economist".
Only time will tell if the action of Japan's Finance Minister Yoshihiko Noda on currency intervention of the yen will yield positive results for Japan's export firms. At least it manage to prevent incumbent Prime Minister Naoko Kan from being sacked.
In the various financial news providers, central banks who do a currency intervention to lower the value of their currency to make their exports more globally competitive are usually frowned upon by top economists. My question now is, is currency intervention legal?
With almost every major global economy's central bank now resorting to currency exchange manipulation, a global trade war is inevitable.
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