Eavesdropping on currency chitchat

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Eavesdropping on currency chitchat


Mrs. Kim, an affluent investor in Gangnam District, called three masters of investments - Mrs. Watanabe, Mr. Wang and Mrs. Smith - for a talk. The topic of the day was the alarmingly low Japanese yen. Mrs. Kim started the discussion. “This really is a problem. The value of yen dropped by more than 10 percent.”

Mrs. Watanabe responded by saying, “Well, at least it’s not as serious as the low yen trend 10 years ago. Back then, I enjoyed good profits through the yen carry trade, borrowing cheap yen at a very low interest rate and investing in the bonds of major developed nations. But now, I don’t have anything to buy with the interest rates so low in the United States and Europe and emerging economies still unstable. Korean and Chinese markets are better, but I am still watching the market.”

Mrs. Watanabe’s eyes suddenly sparkle. After all, the effect of the low yen is already showing in the market. Stocks of Japanese companies are on the rise, and the corporate sector is gaining vitality. She is gearing up to make money by dealing in the global market. She cannot help smiling, but has to hide her intent.

Then Mrs. Smith stepped in. “Japan has had a hard time for the past few years with the recession and high unemployment. It is about time you release money to revive the economy.”

By the way, what is she talking about? It was the United States that released money on the market in the aftermath of the 2008 financial crisis. And we all know Mrs. Smith made a fortune from “high-risk, high return” investments back then.

Mrs. Smith added, “After the global financial crisis, the exchange rate difference between the won and yen was 60 percent. If the Korean economy benefited from the currency exchange, it is about time you make some concessions.”

The exchange rate difference of 60 percent is actually the argument of Yale University professor Koichi Hamada, who advises Prime Minister Shinzo Abe. Why does Mrs. Smith support Japan’s argument? Are they on the same side? Well, a few days ago when Abe and President Obama met in Washington, the low yen trend was briefly mentioned. Those in power are trying to resolve economic problems by printing more money.

Mrs. Kim could not take it anymore and made a counterargument. “Oh, so you mean Mrs. Watanabe should buy more U.S. treasury bonds? Is Mr. Wang not buying aggressively anymore?” Mr. Wang, who has been listening, said, “If Japan and the United States care about themselves only, all the countries around them will starve. Behave like a developed country, please.”

The four-way meeting ended in a cockfight. But Mrs. Kim is the only one with worries. Her investment prospect is gloomy because of the currency war between big powers.

But there is always a way out because she can ride the low yen trend. “Try to keep the yen low for now. The United States won’t let it stay low forever. The exchange rate to the dollar won’t go any higher than 100 yen. Just hold on till then. Go, Mrs. Kim!”

*The author is an editorial writer of the JoongAng Ilbo.

By Yi Jung-jae
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