Global trends also favor a lower yen. Even though the US economy has slowed markedly, the strong dollar is likely to continue siphoning capital from Asia. Europe's slowdown, meanwhile, may be prolonged by the European Central Bank's reluctance to cut rates this year. For all its problems, the dollar may be a more appealing investment than the yen or euro.
Buying opportunity
For those who think Koizumi will succeed in ending Japan's 11-year recession, a declining yen may present a buying opportunity.
Anyone who calls the bottom to Japan's malaise and puts their money where their gut feelings are could enjoy one of the biggest bull markets in modern history. How many are willing to take that risk is unclear, especially since so many have been burned investing in Japan in recent years.
Keeping investors away is the fear that Koizumi's initiatives won't just undermine yen assets in the short term, but cause a meltdown. A plunge in the yen could exacerbate the losses in the Nikkei 225 stock average, which is at its lowest level since January 1985. It could also destabilize the bond market, boosting yields at a time when Japan needs lower borrowing costs, not higher ones.
If Koizumi has done anything, he's shined a spotlight on Tokyo's potential fiscal crisis. Politicians' attempts to revitalize the economy focused on government spending financed by bond sales. That's left the nation with a debt load a third larger that its entire economy. Any increase could have a catastrophic effect on Japan's financial system.
While Japan's future and Koizumi's roles in it remain impossible to predict, one thing seems pretty clear: The yen won't hold much allure for investors.
RSS