From: Ron Kean (ronkean@juno.com)
Date: Fri Feb 19 1999 - 21:17:20 MST
On Thu, 18 Feb 1999 17:52:57 -0800 Wei Dai <weidai@eskimo.com> writes:
>
>I'm not sure this is the right forum to discuss this issue, but since
>you
>brought it up...
>
>I do not understand why Japanese savers do not invest more of their
>money
>outside of Japan (in the US or Europe for example). First of all it
>would
>earn a lot more interest. It would help the countries they invest in.
>It
>would also stimulate demand for Japanese exports, thus helping their
>own
>economy. And finally it would solve the problem of their savings not
>being
>worth anything when they retire.
>
>It just seems like a win-win solution, yet it is not adopted nor even
>promoted. Why?
>
For some years, sophisticated investors, individuals, funds and
institutions, not just Japanese, have been borrowing yen at very low
rates, converting to dollars, and buying US treasuries paying much higher
interest rates. That's in part why the US dollar went to almost 150 yen
and the US long bond to 4.7% last year. It was called the 'yen carry
trade'.
In recent months those positions have apparently been unwound, which is
presumably in part why the dollar is now at 115 to 120 yen and the US
long bond is above 5%.
As far as I know, it is not at all illegal or officially discouraged
these days for a Japanese citizen and resident to expatriate as much
capital as he wishes. Indeed, Japanese and foreign banks offer dollar
accounts right in Japan, as do many banks in many other countries. And
many Japanese have invested outside Japan for years. Back in the 1980s a
significant portion of the US public debt was held by Japanese interests,
both official (Bank of Japan) and private, and much US real estate was
bought by Japanese.
But the average person is not comfortable with exposing their savings to
the risk of exchange rate fluctuations and high inflation. For Russians,
that means having dollars, not rubles, because dollars are more stable
than rubles. For Japanese, that means having yen, not dollars, because
yen have a somewhat better record than the dollar of holding purchasing
power over the last 30 years, and because to the Japanese, the dollar
sometimes looks like a 'roller coaster' currency. But that may change.
For years, platinum has been a popular 'investment' with some Japanese.
The average Japanese saver typically relies on the country's 'postal
savings' plan, which is government operated and guaranteed, and pays low
interest. Large Japanese investors use banks and brokerages, which are
at least de facto government guaranteed ('too big to fail'). It is sad
but true that most of these institutions are insolvent or nearly so, in
part due to economic inflexibility, organized crime, cronyism, and
sweetheart deals. Japan is in need of fundamental reform.
Ron Kean
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