[Viewpoint] Strengthening yen, but little to buy

You can feel the sense of panic rising in perfect synch with the yen.

Will the Bank of Japan intervene to weaken it? Is Prime Minister Naoto Kan plotting action with lawmakers? What will happen to the economy as that mean, old dollar weakens and wreaks havoc on the nation?

Never mind that the economy was just as feeble when the yen was 125 per dollar as it is now at 84. Or that Japanese executives are a bunch of crybabies. Germans don’t bellyache about exchange rates; they adapt and make money. Yet Japan is in crisis, we are told with growing drama. Growth is doomed, deflation is accelerating and all hell will break loose.

Time for a confession: My own sense of dread, divergent as it is from the masses, pertains to shopping. I have all this strengthening yen and nothing to buy.

Japanese stocks? Not with private industry waiting around for the government to throw it a lifeline - again. Not with unemployment rising, incomes falling and consumers sitting out this so-called recovery.

Sure, you could dabble in Toyota Motor Corp., though that may be risky with the threat of future recalls hanging over the shares. There’s also reason to wonder if China, the biggest automaker, can keep buying Japanese cars.

Consider the 60-mile traffic jam on a highway leading toward Beijing that stranded motorists for days. Think about that the next time you complain about congestion on the Long Island Expressway. Chinese want cars. It’s more a matter of having enough roads to accommodate them all.

You could embark on the Philippines holiday you’ve been craving. Then again, given how pathetically security forces in Manila handled the deadly attack on foreign tourists this week, perhaps not. Peace-and-order concerns are always on your mind when you visit the Philippines. Yet eight members of a Hong Kong tour group dying in a hapless rescue attempt on a bus won’t endear the nation to travelers.

You could consider buying Japanese real estate, before rapidly coming to your senses. Among the vestiges of the 1980s boom and bust is a stubbornly weak property market.

Granted, it’s an imponderable time. Currencies normally correlate with fundamentals. Good economy, strong currency. Zero rates and too much debt, weak currency. In Japan, the worse things get, the stronger the yen becomes.

That’s why Japan hasn’t intervened in markets this year - it wouldn’t work. As the U.S. economy grinds lower, the dollar is following. The yen is going the other way by default, a byproduct of a global financial system that has gone awry.

The only way yen sales might help is if the Federal Reserve and European Central Bank act in concert with the BOJ. Such action isn’t out of the question, yet the costs of intervention failing would be high.

It’s a fair question whether the yen is as overvalued as the spot rate suggests. Deflation means the yen isn’t as strong on a “real effective exchange rate” basis. Also, Japan is a trade-surplus nation. If it really wants a weaker yen, then it should work to reverse its trade figures. All this may inspire little sympathy in Washington and Frankfurt.

This is also an every-economy-for-itself time. The U.S. and Europe are getting an export boost from currency trends. Nor is Japan’s economic team doing itself any favors. One former Ministry of Finance official was called “Mr. Yen” for his ability to tame markets. We might as well call Finance Minister Yoshihiko Noda “Mr. Dollar.” Every time he opens his mouth, the yen does what Japan doesn’t want it to.

That gets us back to our yen shopping list. Sure, you could buy Japanese government bonds. Yet with 10-year yields a scant 0.89 percent, you may have missed the boat.

You could invest in increasingly ubiquitous “100 yen” shops, Japan’s answer to $1 stores. Other than bargain clothier Uniqlo and services catering to the elderly, Japan has few other genuine growth industries at the moment. Of course, profit margins on 100 yen items may not excite many.

Japanese could always time-warp back to the 1980s and revisit their old acquisition haunts. Hmmmm ... wonder what the Pebble Beach golf course over in California goes for these days. And who doesn’t love that Rockefeller Center?

Given Japan’s energy needs, the yen leaping to a 15-year high would seem advantageous. So it’s time to load up on oil, steel, lithium and indium? Oh, wait. While Japan spent the last 10 years avoiding change, China trolled the globe for good deals on resources to fuel its 10 percent growth.

Japan could have spent the 2000s reducing regulations, tweaking taxes, raising productivity and supporting entrepreneurs.

Instead, it obsessed about a currency that rose 27 percent in that time. It’s time to shop around for a new strategy.

*Translation by the JoongAng Daily staff.
The writer is a Bloomberg News columnist.

By William Pesek