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Research:
Long Term Loans in Majors

Japanese Yen
Fundamentals
Japan is cornered with a stagnant economy and no room to maneuver on its Monetary and Fiscal Policy fronts

As a result, both USA and Japan may be willing to let the Yen weaken

Interest rates should continue to be relatively low

  • 40-45% of Japanís exports is to the Far East. The region has been facing slower growth (due to a fall in exports due to hitherto strong currencies), large trade deficits and now falling currencies. The malaise may continue for a while.
  • This could dampen demand for Japanese goods. Even if the Tigers pick up again next year on the back of a weaker Dollar, a slower US economy would be bad for the rest of Japanese exports.
  • Domestic demand is not growing at all, and seems to have been hit hard by the "Consumption Tax" in April 1997.
  • Whatever recovery is happening (or is supposed to happen) is only export-led. And the export performance is limited to the large companies.
  • Japan has no more room to maneuver on its Monetary Policy front, with the Official Discount Rate as low as 0.5% and the 10 JGB Yield falling to a record low of 1.958% on 1st September, 1997.
  • Japan has also very little ammunition left on the Fiscal Policy front.
  • As a result, the onus would be on weakening Yen to lift Japan out of its misery
  • Whether that will make USA see red is the question the market is grappling with right now.
  • There is a possibility that the "Real Yield" in Japan could fall further in 1998 and that the "Yield Gap" vis-a-vis the Dollar could widen. CHECK
  • We could probably be looking at a weak/ very weak Nikkei.

Technicals
There are even chances that the Yen will gain to 117 in the next 3 months or that it will weaken to 128. Both should prove to be formidable levels. We could see 140 over 24 months
The key to the future movement of Dollar-Yen really lies in Mark-Yen. If Support at 63.80-65.20 holds on Mark-Yen, the Yen could weaken against the Dollar. DEMJPY could see 70 over the next 24 months.

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