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6 Sep 2013
Flash: Differentials in Japan and EZ; USD/JPY peg – BMO
FXstreet.com (London) - Stephen Gallo, European Head of FX Strategy looks into the differentials of solutions between Japan and Europe, JPY, EUR and USD.
Key Quotes:
“Between 1950 and 1970, for instance, Japan’s savings rate soared from 30% of GNP to more than 40%, as the country adopted an investment and export-led model of growth. Over that period, the JPY remained pegged to the USD at an exchange rate of $1 = ¥360, which many argued was undervalued based on price developments in Japan (i.e. lower export prices) and the nation’s widening trade surplus”.
“That the Japanese banking system and exchange rate were ultimately geared towards boosting Japanese savings rates and the trade surplus well into the 1980s is absolutely crucial. In Europe, the banking system and credit bubble of the 2000s did just the opposite: it fuelled lower savings rates and deterioration in the trade balance”.
“These important differences are critical to understanding why the problems facing Europe and Japan do not require the same set of solutions. The “Japanisation” characterisation is therefore not applicable to Europe, and it is therefore not applicable to the EUR either”.
Key Quotes:
“Between 1950 and 1970, for instance, Japan’s savings rate soared from 30% of GNP to more than 40%, as the country adopted an investment and export-led model of growth. Over that period, the JPY remained pegged to the USD at an exchange rate of $1 = ¥360, which many argued was undervalued based on price developments in Japan (i.e. lower export prices) and the nation’s widening trade surplus”.
“That the Japanese banking system and exchange rate were ultimately geared towards boosting Japanese savings rates and the trade surplus well into the 1980s is absolutely crucial. In Europe, the banking system and credit bubble of the 2000s did just the opposite: it fuelled lower savings rates and deterioration in the trade balance”.
“These important differences are critical to understanding why the problems facing Europe and Japan do not require the same set of solutions. The “Japanisation” characterisation is therefore not applicable to Europe, and it is therefore not applicable to the EUR either”.