Most undervalued currency?

rock3r said:

That said, it strikes me that maybe the yen is overvalued already.

Japan, as an economic entity, has a nasty century out before it: the mother of all demographic crises, no growth to build on, the ascent of an ultra-powerful historic cultural rival on its western shore.

Maybe a decline in the yen is justified given the big picture

Click to expand...

It sounds like a paragraph you pulled from somewhere else. The yen is the most undervalued of all western currencies, it also along with other asian countries has a huge trade surplus, even china imports alot from japan. Its car manufacturers are the world leaders, it is also a world leader in heavy plant, look around an irish construction site almost all the heavy plant is japanese. Japan still excels in technical knowhow which is unique for a modern western country ( other westwern countries have outsourced this). Why has japan a nasty century before it, if it has a demographic crisis its nothing compared to crisis facing china and india. Japan may not have its own oil source but alot of the world burns oil in japanese engines.

I have never studied economics. Can anybody explain to me what the fundamentals of a currency value is based upon ? Is it merely supply versus demand (like a commodity) ? e.g the better the Japanese assets do then the more demand there is for exposure hence people buy the currency and assets denominated in that currency to gain the upside and sell when theres a downside ? Does this depend on how well the Japanese economy is doing ?
And it seems to me that it must be very complicated to actually figure out how much of a Japanese company is affected by the Yen as most of their companies seem to be heavy exporters such as Sony and Nisssan and therefore earn a lot of revenue in Dollars and Euro for example. Then there is also their overseas plants which would create products using local currency and then ship them.

If the Yen increases in value will this not have a serious effect on Japanese exports and hence on their economy ? And how would this affect their deflationary problem ?

China and India have a pool of 500 million ultra-cheap labourers to call upon. Each. You don't have to be a devotee of Marx's Labour Theory of Value to understand that this cheap access to a vital factor of production spells massive riches. Riches which Japan must work harder for.

Chinese car manufacturers are rivalling Japan for quality, and they have them massively beaten on cost.

According to some estimates, Chindia's economic advantage based on cheap abundant labour is greater than the slavery-based cotton plantations of the South, or the sugar plantations of Barbados.

Room305, what are the odds of Japan simply devaluing the yen to make Japanese exports stronger again.

MrKeane said:

Its worth remembering that Japan has no oil reserves of its own.

Click to expand...

It's got a great deal of nuclear expertise and isn't hamstrung by a backwards population opposed to building new plants, it's actually quite well-placed to cope with oil supply problems.

rock3r said:

According to some estimates, Chindia's economic advantage based on cheap abundant labour is greater than the slavery-based cotton plantations of the South, or the sugar plantations of Barbados.

Click to expand...

Do these estimates make allowances for the massive advances in productivity the west has made since these times?

rock3r said:

Room305, what are the odds of Japan simply devaluing the yen to make Japanese exports stronger again.

Click to expand...

It's not as easy as people think to devalue a currency (unless you have a peg to another currency in place and simply drop the peg). The BoJ tried in vain to stop an uptrend in the Yen in the late nineties, whereupon it funnily enough dropped like a stone when they stopped intervening in 2000.

Given the political earbashing the Japanese are receiving over the export advantage they currently enjoy from a weak Yen, I doubt they will move to make it any weaker. However, if the Yen starts to rise significantly they may well move to prevent it but I doubt they'll enjoy much success (at least temporarily).

sign said:

I have never studied economics. Can anybody explain to me what the fundamentals of a currency value is based upon ? Is it merely supply versus demand (like a commodity) ? e.g the better the Japanese assets do then the more demand there is for exposure hence people buy the currency and assets denominated in that currency to gain the upside and sell when theres a downside ?

Click to expand...

An amateurs perspective on it.....

At present, alot of it is related to interest-rates.

Japanese savers/investors are taking advantage of higher interest rates in other countries by selling Yen to buy NZD for example, even borrowing to do so. Since they're borrowing at a BoJ rate of 0.25% and earning interest at 7/8% (whatever it is in New Zealand), they're turning a profit by doing this, as long as the exchange rate remains in their favour.

Institutional investors aren't interested in Japanese govt. bonds, preferring to buy US treasuries instead.

This is causing an outflow of capital from Japan, lowering their exchange rate.

My own personal opinion is that the BoJ paradoxically need to raise rates to boost their economy. At the moment, they're humming and hawing their way to nowhere, whereas a rise in interest rates might actually signal a bit of official confidence in the economy, breaking the negative cycle. It would also help stem the flow of capital out of Japan, and get them saving/investing in their own country again.

conor_mc said:

My own personal opinion is that the BoJ paradoxically need to raise rates to boost their economy. At the moment, they're humming and hawing their way to nowhere, whereas a rise in interest rates might actually signal a bit of official confidence in the economy, breaking the negative cycle. It would also help stem the flow of capital out of Japan, and get them saving/investing in their own country again.

Click to expand...

I agree that a unexpected rate rise by BoJ would signify confidence in the economy and may kickstart it into gear. What is an interesting but perhaps not often enough considered issue is investors shunning of Japanese bonds (the Japanese 10yr bond looks like it is about to breakdown) will raise rates irregardless of the BoJ's actions.

Is the canadian dollar undervalued, due to the huge amounts of oil in the Alberta oil sands?

tippergore said:

Is the canadian dollar undervalued, due to the huge amounts of oil in the Alberta oil sands?

Click to expand...

No, it's enjoyed huge appreciation of late. It may fall back a bit but it will eventually trade on par with the USD.

Here is my tuppence worth.

I resently visited Japan and found it cheaper then Ireland.
All of the cities apart from Toyko and Osaka are significantly cheaper for accomadation and dining.
There are still many resaonable priced options in these two cities but like large world cities everywhere you can pay the both reasonable and high prices if you wish to do so.
The minimum wage in Toyko is 719 yen, approx €4.35 per hour.
Administartion and Clerical workers for some of the foreign (US) investment bank companies earn about 1,800 yen and hour, approx €11 ph.
The japanese govt sets their economy up with the fundamental principal that it most compete globally. If the workers/consumers have to make sacrifices for a strong economy, so be it. The most important thing is as a economy, Japan is competive.
Not too sure what this means for the future path of their currency.
But at their low wage levels and low inflation they have less to fear from global economy than maybe we do in Ireland.

So what's a month's rent like?

JumpShot said:

Here is my tuppence worth.

I resently visited Japan and found it cheaper then Ireland.
All of the cities apart from Toyko and Osaka are significantly cheaper for accomadation and dining.
There are still many resaonable priced options in these two cities but like large world cities everywhere you can pay the both reasonable and high prices if you wish to do so.
The minimum wage in Toyko is 719 yen, approx €4.35 per hour.
Administartion and Clerical workers for some of the foreign (US) investment bank companies earn about 1,800 yen and hour, approx €11 ph.
The japanese govt sets their economy up with the fundamental principal that it most compete globally. If the workers/consumers have to make sacrifices for a strong economy, so be it. The most important thing is as a economy, Japan is competive.
Not too sure what this means for the future path of their currency.
But at their low wage levels and low inflation they have less to fear from global economy than maybe we do in Ireland.

Click to expand...

This contrasts with a story from a distant relative of mine who lives in the USA and whos travelled a lot who was charged 20 dollars for a cup of coffee in Tokyo.
Thanks for that piece of
information . Now my perception of Japan is more balanced than before.

rock3r said:

So what's a month's rent like?

Click to expand...

And rent per square metre!

Rent:
I have a Japanese friend who returned from Ireland to Japan. They stayed with their folks in Yokahama when they got back and I have has just rented a one bed apt in Toyko for 120,000 yen pm. I do not know location but it is on metro line. So €750 pm approx. Admittely most one beds may be only about 300 sq ft, but if that is the living space people are used to, they are happy.

In respect of $20 cup of coffee, you can also pay very high prices at Irish bars for beer, but in a lot of places you can get one for 500/600 yen

So a 1 bed apt in the capital of the world's 2nd richest country, close to public transport, is EUR750???

While here, A 1 bed on the Dart line would set you back almost double that.

So, who picked the ¥?

Doing nicely at the moment. Should have bought it with $ though.

not good for many japanese housewives who were borrowing in yen to buy foreign currencies, it was a one way bet for so so long