Japan

There's a really good article by Robert Higgs online at the Independent Institute where he discusses excess reserves that American banks currently are keeping and the impact this could have on the money supply once they start lending again. He notes:

At matters now stand, by far the greater threat is rapid inflation, notwithstanding the ongoing recession.

According to Nikkei Net, the yen will probably range between 87 and 92 yen to the dollar this week. Trading will again be thin, and large fluctuations are possible. There is still a strong sense that the yen could appreciate considerably, especially as more negative data appears about the American economy. The initial jobless claims report on 12/31 might be important, as well as the ISM Manufacturing PMI due out on 1/2.

From Bloomberg:

Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co. The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said.

According to the Nikkei Shimbun, trading will be slow this week as Europe and America celebrate the Christmas holiday. However, those participating in the market forecast the yen to range somewhere between 85 to 90 yen to the dollar. The yen is expected to continue strengthening, but if it strengthens too fast it is likely that Japan's central bank will interfere to try and slow things down.

From Bloomberg.com:

Investors should sell the U.S. dollar at 89 yen as it may decline to 83 yen, National Australia Bank Ltd. said. They should exit the trade if the greenback strengthens to 91 yen and watch for intervention in February and March if the currencies trade at 80 yen or below, Sydney-based John Kyriakopoulos, head of currency strategy at the bank, wrote in a note yesterday.

Read the entire article linked above.

If you are interested in the future of the yen to dollar rate I highly recommend Daisuke Uno's recent article in the ekonomisuto 12/23 edition on sale now in Japan. Here is the title of the article in Japanese:

為替　２００９年は１ドル＝８０円台へ　その後も円高続き１１年には５０円に向かう

Basically the author is predicting the yen should stay in the 80's during most of 2009, and then strengthen about 10 points each year until 2011. He sounds very pessimistic about the American economy and Obama especially.

I'm sure the Japanese taxpayers are all going to get kind of warm and fuzzy over this. According to an economist interviewed by the Japanese Times:

Ichikawa said there is more than a 50 percent chance that Japan will inject public funds into the U.S. financial sector after the Lower House election, which is expected as early as November. The call for the contribution is likely to come once the new U.S. president is elected Nov. 4, he said.

Good grief.

I've never seen this before: