I just bought something from Japan and the current dollar/yen conversion rate truly blows! I thought we were getting better.
Hate to say it, but I think we may be looking at a long-term trend here, with US economic fundamentals and unprecedented US gov. borrowing leading to a major devaluation of the currency. It might even get worse as inflation kicks into high gear once the recovery starts. At the same time, China keeps talking about a world currency. They're freaked out about their trillon dollars in foreign currency holdings and want to do something about the insane fluctuations we've seen over the last decade. Can't say it's all that bad of an idea, but implementation is probably decades away. Of course, if I've learned anything from following fx trends over the last decade, it's that "experts" have no idea whatsoever what they're talking about, so forecasts are wrong as often as they're right. All you can do is make plans based on immediate to short-term trends. Not much consolation for sofubi collectors. Think about the POV of the makers & dealers. They're getting hammered by the strong yen as customers slow down on buying.
It's not just the dollar, the yen is high against British pounds too. Last time I was in Japan & went to change money the guy at the bureau started bowing and apologising as soon as he saw my money gesturing up and down motions, I told him "not to worry it's not your fault" then he did the conversion... ouch! I got about half what I was expecting. At least we're up against your jolly green dollar again
man I hope this forecast doesn't come to pass... http://forecasts.org/yen.htm click at your own risk, NSFW (not safe for weak hearts)
1 USD to 83 yen is my magic number when I'm moving a large part of my savings from my Japanese account to my US account. It was around that low in December 2008 or so, and I missed out. Really sucks going the other way, though.
Something that bears mentioning in a sustained 80-85 yen/1 USD rate could throw Japan into sustained depression. The country is heavily reliant on exports, and the repatriation of USD -> yen destroys Japanese profits and jobs. Believe me, they need the yen to fall a hell of a lot more than we do. Having said that, forecasts are as useless as stock tips. If the "analysts" had any idea what they were talking about, they'd be sipping margaritas on yachts, not cranking out forecasts.
It's really unfortunate that Japan's long overdue economic reemergence from the East Asian Financial Crisis was cut short by the global recession. The huge vacuum created by the shrinking of credit availability has put even more of an emphasis on cash in Japan than here in the US. In short, 100 yen is even more hard to come by than the dollar right now, hence making it seemingly more valuable. It's important to keep in mind, however, that the Yen is still pretty much tied to the dollar as a form of currency because of Japan's reliance on the US's economy, hence the limited "investment potential" of the currency. In otherwords, even if the conversion rate seems to tilt heavily in the favor of the Yen versus the dollar, prices will need to be lowered in order for business to continue, thus leaving the "buying power" of the dollar (versus the Yen) pretty much unchanged. The same goes with the the UK and the pound. Also, it is never a good idea to tie up too much money in foreign currencies as in the case of War or market collapses, etc., you do not have the same FDIC safety measures in place to protect your money, replaced by IOU's and the like (as in England during WWII). The best strategy when it comes to investing in foreign currencies is to use it to add diversity to your portfolio. In otherwords, by investing in one or more of the primary regional "stabilizing currencies" (the US Dollar; the Swiss Franc, the Singapore Dollar, and the New Zealand dollar) you can protect yourself from too much volatility if there is uncertainty in one or more parts of the globe. I like to use Spider Funds to do this, but going the Forex route will work as well. Anyhow, the main thing to keep in mind is that the true value of a currency lies in its buying power rather than any particular conversion rate. If China continues its astronomical GDP growth rate of between 7% and 9%, it will take over 50 years for its GDP to match that of the US, however with the current buying power of the Yuan (currently one can walk into any convenience store in Beijing and buy one small bottle of Coke for 1 Yuan which is 1/7 the dollar) the Chinese have virtually pulled neck in neck with the US.
Hmm, I've read reports that every one yen fluctuation, up or down, against the USD has huge impications for Toyota's profitability. Buying power is key in local markets sure, but for multi-national corporations and export-reliant companies, exchange rates are critical. The USD you earn in Baltimore eventually needs to be sent back to Tokyo, unless you preserve the greenback to fund overseas ops, purchase goods, etc. Actually, when it comes to raw materials, oil, etc. Japanese companies have it good now, since the USD is used for commodity trading, putting Japanese buyers in a favorable position. So, who knows, perhaps a long-term trend of a strong yen could lead to the repatriation of Japanese factories, which would be a great thing for their economy as well as consumers who prefer the superiority of goods manufactured in Japan.
Are you including the manufacture of cars in the US? If so, I just don't see that happening. There is far too much tied into those plants and I think you would see a huge backlash from the American consumer as well as government involvement.
Hard to say, but I'd think economies of scale, distribution, logistics, and other issues would mean they'll keep auto plants regional. But I for one would love to see every Sony, Canon, Toshiba, and other small electronic product made in Japan. I regularly pay more for MIJ products since the quality is superior.
My ignorance is really going to show through here, but aren't most of those products produced in various parts of Asia? Wouldn't it still be cheaper to produce those goods outside of Japan even with currencies fluctuating like they are?
Come on Andy, put your thinking cap on. If you're running a company, international or not the three fundamentals of success are Price, Demand, and Cash Flow. If Prices take a hit because of a currency exchange rate, Demand will fall along with Cash Flow (exaserbated by the fact that the banks will cut credit market wide). As a business owner the only things you can directly control are Price and Cash Flow (due to overhead). Your choice as an executive of an auto company, would be to cut production and labor to limit overhead and improve cash flow (only good for a short period of time, because of loss of market share), or to cut prices in an effort to trade immediate profitability for market share by being a "price leader." The world economy in the foreseable future will continue its trend of price deflation, keeping pressure on the US Fed rate to remain at or around zero. This will be assured until wages increase to a point where an average family can comfortably afford a home. Until then, prices will continue to drop until wages begin to gain. The now overly cautious banks will make this a virtual certainty. And if property values are low and wages are low, you damn sure better learn how to make a cheaper, more affordable car, or your days at the top of an Auto Manufacturer are numbered. The same goes for any other company, global or otherwise.
To keep the Internet from exploding and to avoid someone here quoting the Simpsons, I won't try to parse your words, play gotcha, or question your acumen, but I will say I prefer to deal in practice over theory, so for my reference to Toyota, you can choose a few keywords and very quickly find articles discussing what I was talking about. The reference was not arbitrary. To bring the matter closer to home, I'll reference what I've been told by a prominent Tokyo toy store that the strong yen is hammering sales and keeping foreign customers away. Again, real world example. Supply, demand, Macroecon 101, and Excel sheets aside, it's just the way it is. 90/1 = a drastic reduction in sales. So I stand by what I said. When it comes to foreign trade, exchange rate issues are critical - sometimes overwhelmingly. On a larger scale, in terms of who makes what where, I wonder if a more fundamental issue that's crippling both the USA and Japan may be the lack of a manufacturing base in both countries. It's a bit late to get into that, so I'll just throw it out and there and let someone else pick it up if they want to.
And if you want discuss the "relative strength" of the Japanese versus the US economies at this moment, the Japanese are in pretty dire straits. Because of competitive disadvantages in the global marketplace with regards to human and natural resources, Japan's success in the past has always been due to the strength of its Capital (gained by superior products at competitive prices), allowing it to be a technological leader when it comes to research and development (which is capital intensive). Take away that Capital advantage, by huge losses in cash flow and industrial market share and you have a big problem. If a currency's conversion rate is "very strong" versus that of another, it just means that prices are very low versus capital liquidity. Conversely, if the same currency's rate is "very weak", then prices and inflationary measure are that much higher. Both extremes are not strong qualities for a Gross National Product.
Nice thread. Japan will reemerge as a superpower when Honda releases the much anticipated Sex Robot. Stealth-where is China going to get their power? Oil? Aren't the oil fields occupied by U.S. Special Forces? I saw China bought a Copper Mountain in S. America.
So true. Imagine a world with legal brothels, all the employees Japanese sex robots, skinned to be as beautiful as any woman you've ever seen. no worries about disease or safe sex. They'll be all over the place, every Starbucks is going to be converted into a sex robot brothel. Buy stock in Honda now.
In most cases, probably, but overseas manufacturing is one of the things that has hurt the reputation of Japan Inc. There's a real quality difference between a camera made in Japan and one made overseas. I recall coming across reports that some factories are heading back to Japan, but I'm not sure how widespread that is. If it does become commonplace, it's probably a good thing all around, and this goes back to what I said about the danger of not making anything. There seem to be significant risks to a country when it becomes too reliant on things like service and banking to employ domestic workers. When the "backbone" of its industries moves to cheaper offshore locations, it can mean nice profits (for a time) for corporations, but it leaves the domestic labor pool vulnerable and corporations more exposed to things like currency fluctuations, supply and distribution problems, quality concerns, etc. So I think there's this growing sense that globalization may not be all it's cracked up to be, at least in certain industries. On a related note (and this ties things back to the currency issue), given the way things have turned out with globalization, one wonders more and more whether something like a world currency might be a decent long-term goal, not necessarily to replace, but to supplement existing currencies.
The reason the Tokyo toy store's sales are being hammered is because the "monetary value" of his product is dropping; the exchange rate is only an effect of this phenomenon, not the cause. A country's exchange rate is more appropriately viewed as an indicator of its national economic policy rather than reality. Now this is a worldwide phenomenon instigated in no small measure by interest rates being artificially suppressed for such a long time, making credit overly enticing thus pushing prices on all goods higher than what the wages of workers could realistically afford. This "credit expansion" phenomenon is the reason why bubble economies are created and inevitably burst. It also causes rampant financial inequality. It's not a coincidence that the two leading periods of credit expansion in history (the 1920's and 1990's) were followed by depression and a major increase in economic inequality. Prices are going to continue to fall worldwide, which is not necessarily a bad thing, as consumers will now be forced to spend within their means and rely more on cash and much less on credit. Once prices stabilize, we can then increase interest rates to levels not seen since the 80's, which will make loans and credit cards very expensive and the American dream much more attainable.
Of course the exchange rate is the cause. Last July a collector in Topeka paid $10 for a toy from Kaiju Taro. Today he pays $12 for the same toy. There's no voodoo at work here. The toy has become more expensive to the collector, so he passes on the purchase, and the store loses the sale. At the same time, Toyota collects $100 million in revenues from its mid-west dealerships and repatriates those funds to its HQ in Japan, since it's time to do the quarterly books. In a very real sense, it has lost a huge amount of money over a similar transaction conducted last year. That's why company reports regularly cite gains and losses from exchange rate fluctuations. We're not dealing with abstractions here, but real scenarios that have real implications for consumers and producers. For those involved in international trade, even on a small scale like a Tokyo toy shop, currency exposure is a critical issue. So again, one world currency? Certainly worth considering.
So what does the seller have to do in order to sell said item? He has to drop the price so that the US buyer can afford to pay for it; the currency exchange rate has little to no effect on the US buyer's final price in dollars (he pays what he can afford in dollars), however the Japan seller has to make due with less Yen or no Yen at all. If the true value of the toy were 12 dollars, wouldn't the seller be able to find one person in Japan to buy it without having to lower its price so that those with a weaker currency might have the chance to own it? Are you trying to say that you honestly believe Japan's national currency is so great with such massive buying power, that it has to devalue the monetary value of its own goods just so the rest of the world has the privilege of owning its products? If you do, than I feel sorry for your naivete. Reality is, Japan is struggling to adapt to a new global economy, where credit markets are frozen and cash is harder and harder to come by. Your example is just a microcosm of this. And with regards to Toyota, they (as well as Honda) have made the mistake of cutting production rather than lower there prices and have lost market share to even the bankrupt and near bankrupt US automakers Ford and GM since last year. http://www.bloomberg.com/apps/news?sid= ... d=20601087
