What's up with the value of the YEN?

[Greji]

I would say that money works very well as an amplifier.

Well, call me amplified as I am most happy when me pockets are full. The rate being what it is today had me change a couple of pounds for my business trip.

Hope we have a chance to get together Lurk!

[maraboutslim]

I think the issue here is that we see money in fundamentally different ways. If I am not mistaken, you see money as a finite resource that you work to earn, and then use to live. Correct?

Are you asking whether I see money as something that must be all used up each week/month/year that I earn it? Don't be ridiculous. If you are asking if that's how I choose to approach it anyway, then, uh, yeah, pretty much, ha! The money I earn actually doing work is used, pretty much in totality, for my family's daily expenses. Of course one reason I do this is that I'm not particularly worried about my future (financial or otherwise).

Retiring at 45 will give me 20 years of extra time (in the prime of my life!) to enjoy my family, travel, and generally do things that I wouldn't be able to do if I was still going to work 5 days a week.

You could do those things now instead, you know. My approach is to instead pretty much slack my way through my entire life, or at least my youth and child raising years. I refuse to spend my true "prime" of my life (my 20s, 30s, and 40s) working enough that I could retire at 45. Of course I may retire at 45 anyways, but I'm not focusing on it. If I had to choose between working more now and less at 50 or more at 50 and less now, I'd choose the latter anyday!

In my 20s in Japan I prefered to surf, play in a couple of bands, and generally goof off rather than work and build a fortune. Now in my 30s I prefer to have lots of time to be around my kids, to surf, to read and write. At the moment I pretty much work 40hrs a week. At something absolutely ridiculous considering my education and former careers and age. But when work is done, it's out of my mind and I'm able to enjoy the rest of my time! I get home about the same time my kids do. Last year I hardly worked at all. The year before that, somewhere in between (had enough time to home school my son even: that was a blast! Hey, let's go have "P.E." at the skatepark. Let's take a hike in the Sierras for science lesson). Anyway, it seems to work for us. I have no debts and buy nothing on credit so that I am flexible in how much I choose to work vs. spend my time in other ways.

So yes, there is quite a difference in our approaches. You are saving/building now for the (uncertain) future. I am choosing to not work enough to do that. If I was single, I could do both quite easily. But because of my added responsibilities/costs, I can only do one and I choose time (now) over money any day of the week.

[fatslug]

o my fucken god ! ths aussie dollar is over the 90cent mark !!!
thats the weakest the yen has been against the AUS$ in history !!!

[FG Lurker]

I think the issue here is that we see money in fundamentally different ways. If I am not mistaken, you see money as a finite resource that you work to earn, and then use to live. Correct?

Are you asking whether I see money as something that must be all used up each week/month/year that I earn it?

No, that was not what I meant. I meant more along the lines of do you think of money as a thing, an object. Something you work for and get paid with, and then use (hopefully not all of it) to live with. I think it is reasonable to conclude from the rest of your answer that you do. I'm not saying this is "wrong", but it does differ with the way that I think about money.

For me money is simply an idea. An abstract concept. Imaginary. Definitely not a concrete thing. I believe money can be created from nothing without having to work long hard hours.

I tried to write out a good but concise example of how this works, but I couldn't. I guess that's why there are so many thick books out there on the subject! It is not difficult to create money though. Nor does it take a lot of money to make money.

You could do those things now instead, you know.

I do, but not on the same scale as I will then. I still need to turn up at my job most of the time. ]I refuse to spend my true "prime" of my life (my 20s, 30s, and 40s) working enough that I could retire at 45.[/quote]
I'm not going to retire because I am working hard long hours now. Hell no!! I work about 40 hours a week at my day job, and 12-20 hours a month doing well-paid consulting. In 5 years I hope to cut my total working time considerably as I will no longer have as much need for income earned by my own labour.

So yes, there is quite a difference in our approaches. You are saving/building now for the (uncertain) future.

No, I am both enjoying life very much now and building for the future. The two don't have to be mutually exclusive...

[FG Lurker]

Hope we have a chance to get together Lurk!

I hope so!! I'll try to drink my cold into submission before the end of the week.

[IkemenTommy]

Man, to live that sort of life would suck badly indeed.

Hey but there are all those millions of proud fools that live that life. Fuck that. Thank god I don't have kids and not obligated to live like that.

Shit.. look at what I started..

[ichigo partygirl]

Yeah it is around 83yen for a kiwi dollar, never seen it that high!!!! Yen must be really weakened. Why?? i no shit about economics.
Also kiwi dollar is strongish at the mo anyway, kiwi dollar hit an all time high of almost 95.5cents against the aussie dollar. hehehe- the time is coming neighbours(evil laughing)

[cstaylor]

Yeah it is around 83yen for a kiwi dollar, never seen it that high!!!! Yen must be really weakened. Why?? i no shit about economics.

The BOJ manipulate the currency to help their export companies like Toyota, Sony, etc... Mulboyne can explain it better, but in short:

[1] Toyota sells a ton of cars to foreigners in their foreign countries
[2] Toyota parks the money in a local bank
[3] When the BOJ weakens the yen to an acceptable level, Toyota moves a good amount of it home

That's probably grossly oversimplified. I program computers, not run numbers^H^H^H^H^H^H study the economy.

[Mulboyne]

The Bank of Japan hasn't intervened in the currency markets for some time now. In fact, I think this current period of inactivity is a record for them.

There are a whole range of factors influencing currency cross rates. Here are a few:
(i) relative interest rates
If your cash can earn more interest in one currency compared with another, you might be inclined to prefer that currency. This leaves aside the question of why interest rates might be at those levels. For instance, country with ramapant inflation woudl be more likely to have very high interest rates but they may well not be high enough to compensate.

(ii) Capital flows
If foreign capital buys assets in another country (stocks, bonds, real estate, companies), they will usually need to buy that country's currency for the transaction. If a company or individual earns foreign currency profits and wishes to repatriate, they will need to sell that currency. This is a factor in:

(iii)Trade and Current Account Deficits/Surpluses
If you export more than you import or invest overseas more than overseas countries invest in you then you accumulate surpluses which will tend to put upward pressure on your currency. Hence the current pressure to revalue the Yuan.

(iv) Purchasing Power Parity
Free traders believe that unregulated trade ought to mean that goods will tend to cost the same no matter where in the world they are purchased. If price differentials do occur between countries, these will disappear over time either because one price goes up and/or the other goes down or else the currency cross rates change to produce the same effect.

(v) Economic growth/stability.
Interest rates are important here but, broadly speaking, investors prefer to hold the currency of stable economies over unstable economies. This can be as much a political judgement as a purely economic one.

All these factors are clearly important in determining currency rates but they work on different levels and over different time frames. Probably more important is how expectations change about these factors and the market perception of what is driving currency trading at the margin.

For what it's worth, the popular rationale for this recent bout of yen weakness is the volume of investment by hedge funds in the so-called "carry trade". Hedge funds control significant pools of money and are very active in trading. A number have borrowed yen, converted it to another currency, usually US dollars, and invested in dollar assets that yield higher returns than their yen borrowing costs. For this investment to work, they need the yen to remain stable, or weaken, against the dollar. If the yen strengthens, the investments will become less profitable or even loss-making.

It is not really possible to know whether this actually is the key factor influencing the yen right now but it's fair to say that, currently, many traders believe it is and so they will place greater weight on any new evidence of changing hedge fund behaviour than, say, new evidence of increasing foreign buying interest in yen assets.

[ichigo partygirl]

Thanks Mulb.

I just looked at some graphs. In the two months i have been here the yen has gone from 78-85(against the NZ) 7yen in 2months!!!! Its incrediable for me. Its making life slightly cheaper - my money just stretching that wee bit more. Bubble better not burst anytime soon

[Mulboyne]

Part of the carry trade investment flows went into gold and, as this article explains, that trend has been reversing of late.
Reuters: Yen shines as Japan's investors cash in gold

LONDON (Reuters) - Strange things can happen on currency markets, but try this: the recent sell-off in precious metal gold, the red-hot alternative investment play, is one factor helping the Japanese yen to come back from the abyss. Bullion, a small player compared with the $1.9 trillion a day currency market, has seen explosive interest -- with prices rising around 100 percent since the beginning of 2001. Prices recently topped $540 an ounce, their highest in almost a quarter of a century. By contrast, the yen has lost as much as 18 percent versus the dollar this year as rising U.S. interest rates compared with near-zero rates in Japan encouraged investors to buy into overseas bonds and alternative investments with a higher yield. The trend has turned in recent days, however, helped by prospects of an end to U.S. interest rate rises and new restrictions on gold trading in Japan's futures markets which has sent money back into the yen. "Gold has come down from $540 to $500 -- there's been a lot of position liquidation -- and the yen is benefiting from that," Bank of Tokyo Mitsubishi currency economist Derek Halpenny said...more...

The unprecedented volume of trading on the Tokyo Commodity Exchange (TOCOM) produced a system glitch which led to the new restrictions. This hasn't been mentioned publicly, however, the explanation being only that the exchange wished to "reduce trading volatility".

[Mulboyne]

Reuters: Yen spikes to 6-week high vs dollar
The yen jumped to a six-week high against the dollar and a one-month peak versus the euro on Friday, extending its rapid rally this week as yet more traders bought back the Japanese currency after a year-long slide. Traders were scrambling to buy back a yen sold in carry trades and suppressed by an inability to attract investors due to near-zero interest rates in Japan. Speculators, such as hedge funds, had been borrowing the yen for almost no cost and selling it in carry trades to buy higher-yielding currencies like the U.S., Australian and New Zealand dollars. "The market is testing how far this unwinding of carry trades will go," said Nobuo Ibaraki, forex manager at Nomura Trust and Banking...Even gold has been a focus of carry trades, contributing to the soaring price of the metal this year.

[Big Booger]

Will it get stronger? I am curious because if so I will wait to send home some dough.

[IkemenTommy]

The yen is gaining again.. at one point it was up close to 120 to a dollar but coming back down. Right now, it's around 115 and falling. Id wait a little longer if you're in no hurry to send money back.

[Mulboyne]

I have no idea where the cross rate will go and I hope I didn't give the impression that I did when I posted. I've met a number of successful investors in stocks, bonds, real estate, wine, art and "collectibles" over the years but I've never met anyone who has consistently called the yen/dollar correctly. I've also seen quite a few "black box" trading models come a cropper so I've always tried to change regularly to average out my rate.

[hidflect]

That's the official name for the situation: Dollar Hegemony.
The US prints US$5.41 Billion a day in fiat money (fiat = group confidence, unbacked by anything). But oil is denominated in US$ so it holds up. If OPEC decided to denominate in Euros = goodbye US
economy. The US cannot/does not have the reserves to support "lender of last resort". Get into Gold now!

If you think its bull - read this super-detailed report from a NY Fund Manager (only for the Economics minded)

http://www.atimes.com/atimes/Global_Economy/GF16Dj01.html

main:
http://www.atimes.com/atimes/others/trade-war.html

...By definition, dollar reserves must be invested in dollar-denominated assets, creating a capital-accounts surplus for the US economy. A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets denominated in dollars expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effects of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies....

[Mulboyne]

Warren Buffet decided 2005 was the year he should bet against the dollar. He is estimated to have lost around $900 million so far on that trade. The markets are never short of reasons to explain price movements; it's finding the right ones at the right times that makes you money.

[jingai]

(fiat = group confidence, unbacked by anything).

True only if you think that the full "faith and credit" of the United States government is worth nothing. In that case you should hoard gold under the mattress and wait for the collapse.
Besides, what countries are still base their currencies on a material standard like gold? (can you still hear the anacronistic cries of "free silver?")

Strong dollars hurt US manufacturing and exports and contribute to an unfavorable balance of trade. This trade deficit is however, balanced by countries investing in the United States. If they start to feel the US is a shaky investment then they won't buy unless interest rates go higher (higher interest rates = higher returns on their investement).
Having the Fed raise interest rates might bring back foreign investment, but it is inflationary as it makes it harder for Americans to mortage their homes, etc.

If you can't afford the payments on a mortage or loan because of rising interest rates, you won't have as much money to spend, which will eventually slow the economy and reduce the amount we buy from abroad. In the long-run we'll be back to equilibrium, but it might not be a fun trip.

The globalization issue is related to but distinct from the dollar hegemony one. Would you also fault the US for the rise of the Asian tigers (Japan included!) who grew rich through cheap exports?

[IkemenTommy]

[quote="Mulboyne"]Warren Buffet decided 2005 was the year he should bet against the dollar. He is estimated to have lost around $900 million so far on that trade. The markets are never short of reasons to explain price movements]
900 mill is playing money to Warren Buffet.
That guy is a genius.
He'll earn it back in no time.

[Mulboyne]

Reuters: Japan says did not intervene in forex market in Dec
...Japan did not conduct any currency intervention between Nov. 29 and Dec 28, the Ministry of Finance said on Friday. It was the 21st straight month that Japan has stayed out of the market, the longest stretch since the MOF began keeping such records in 1991. The last time Japanese authorities sold yen to stem the currency's rise was on March 16, 2004, when it was trading at about 108.60 to the dollar.

[dingosatemybaby]

[quote="Mulboyne"]Warren Buffet decided 2005 was the year he should bet against the dollar. He is estimated to have lost around $900 million so far on that trade. The markets are never short of reasons to explain price movements]

He may yet be vindicated, though, as Keynes famously said, the market can remain irrational longer than you can remain solvent.

[Mulboyne]

He may yet be vindicated, though, as Keynes famously said, the market can remain irrational longer than you can remain solvent.

That's really the point. You can have the best rationale in the world but the market can still make a monkey out of you. Buffet has enough money and enough investment nouse to stick with his strategy or find a route out of it in ways that aren't open to the rest of us.

[Mulboyne]

These kinds of articles should always be taken with a pinch of salt but it's probably worth people knowing the debate going on in the fickle world of finance.

Bloomberg: Yen May Fall to 20-Year Low as Japanese, Hedge Funds Seek Yield

The yen may fall to a 20-year low as individual investors in Japan join speculators on the Chicago Mercantile Exchange in selling the currency. Measured against currencies of Japan's largest trading partners, the yen is approaching its lowest value since 1985, an index prepared by the nation's central bank shows. Japanese investors last month bought more overseas bonds than ever before. Traders on the Chicago futures exchange have a $9.74 billion wager the yen will decline. The currency has fallen 4.3 percent against the dollar in the past four months as a rebound in the economy faltered, suggesting the Bank of Japan won't raise interest rates again this year from 0.25 percent. [However] the median forecast in a Bloomberg survey of 37 brokerages published Sept. 21 is for the currency to strengthen to 112 per dollar by the end of the year...more...

[Big Booger]

According to Xe.com the yen is pegged at 116 to $1. That looks to be about 5 yen higher than this time last year.

09/20/2005 111.50
09/26/2006 116.4840

http://www.oanda.com/convert/fxhistory

I hope it doesn't get weaker.

[Catoneinutica]

The endlessly weak yen is really a fascinating thing, isn't it. Fascinating and utterly frustrating - oh, for that brief, shining moment in the mid-90s when the yen gloriously vaulted into the 80s/USD. Since the Plaza Accord of 20 years ago halving the value of the dollar vs. the yen, we've been treated to endless business-news stories, and heard endless threats from Blinky, "Mr. Yen", et al, that the era of the dollar as the reserve currency of choice by Japan was at hand. Japan, Inc., was going to sell its colossal stash of US bonds and US mkts were going to come crashing down. Obviously it hasn't happened - indeed, not only does Japan love the dollar more than ever, so does China, which is rapidly catching up to Japan in dollar reserves.

[Tsuru]

As far as the € vs the Yen goes the situation is even stranger. Since January it has been climbing steadily to 150 to the Euro, while the Dollar has done the exact opposite, falling to 1.26 from 1.30 to the €. I suppose the Dollar/Yen relationship only goes so far.

I guess as a European I should be happy, but it's not much good if your fiancé's salary is paid in Yen and deposited into a Euro account

[FG Lurker]

For me right now the strong dollar/weak yen situation kicks ass!

OTOH, the super-strong Euro/weak yen situation sucks ass. Guess I can't have it both ways though, unless some Eurolander does something insane and the currency dumps!

[Catoneinutica]

[quote="Tsuru"]As far as the &#8364]


Go tell it on the mountain, brother! Although I'm a Seppo, I often have to make Yen-to-Euro transactions. If I've been walking funny recently, it's because of the KY-less reamings I've been taking. And not only does my bank (Citibank) not even offer a reach-around, they charge 4000 Yen for a wire transfer ("and please be advised that the receiving bank in France may also charge a commission").

EDIT: Just want to say, dingosatemybaby, that's a damn fine avatar you've got there!

[Catoneinutica]

He may yet be vindicated, though, as Keynes famously said, the market can remain irrational longer than you can remain solvent.

It may well be that 2007 is the year his bet begins to pay off. The supersized American housing bubble is beginning to deflate, and the tsunami of foreclosures of toxic-loan-financed properties, on top of the death blow to the real estate, mortgage, home-building and related industries - which up to now have been the catalysts for a large share of the economic growth in the US - will cause a huge debt-driven recession. Watch for a big fall in the Dollar, ala 1973, late 80s/early 90s, etc.

[Tsuru]

Go tell it on the mountain, brother! Although I'm a Seppo, I often have to make Yen-to-Euro transactions. If I've been walking funny recently, it's because of the KY-less reamings I've been taking. And not only does my bank (Citibank) not even offer a reach-around, they charge 4000 Yen for a wire transfer ("and please be advised that the receiving bank in France may also charge a commission").

EDIT: Just want to say, dingosatemybaby, that's a damn fine avatar you've got there!

Hey, look at it this way: 4000Y is only 26 Euros

Seriously though, Citibank are a bunch of crooks... I wouldn't be surprised if you got shafted on the exchange rate as well I believe UFJ offers better rates but they certainly offer much better service, so I suggest you give it a try