Money Morning Mailbag: Japan's Rising Yen Struggle Signals Need for Industrial Shift
The yen strengthened as much as 82.75 per dollar Wednesday, fueled by speculation that the U.S. Federal Reserve would buy more government bonds after a drop in U.S. payrolls.
The yen's rise came after the Bank of Japan tried yet again this week to devalue its currency. On Tuesday the Bank of Japan lowered the benchmark interest rate to "virtually zero," and announced a $60 billion (5 trillion yen) plan to buy government bonds - similar to the 'quantitative easing' policy employed by the U.S. Federal Reserve.
"With today's decision, the Bank of Japan paved the path for the next step," Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo told Bloomberg News on Tuesday. "What will be critical will be how foreign-exchange rates move as a result," along with the impact of any additional easing by the Federal Reserve, she said.
We Want to Hear From You: Are You Prepared for the Global Currency War?
The housing market remains in the dumper. U.S. stocks - despite a rally - are still 22% below their record highs of two years ago. And the "official" unemployment rate remains at a heart-stopping 9.6%.
With their knees almost ready to buckle under such burdens already, how will American consumers respond when clothes, computer accessories or other key consumer staples at their neighborhood Wal-Mart Stores Inc. (NYSE: WMT) undergoes an overnight price hike of 30% to 60%?
As the United States aims to increase exports by debasing the dollar, a global currency war is underway that could swallow consumers and investors if they don't prepare for the likelihood of a weaker dollar.
Currency War Heats Up as Japan Lowers Interest Rates to Devalue Yen
In a move designed to jolt its economy back to life and protect its export industries from an international currency war, the Bank of Japan (BOJ) said yesterday (Tuesday) that it would expand its balance sheet and lower its benchmark interest rate to "virtually zero."
The bank cut the overnight call rate target to a range of 0.00% to 0.1%, the lowest level since 2006. It last cut the target rate to 0.1% from 0.3% in December 2008.
Policymakers also will establish a $60 billion (5 trillion yen) fund to buy government bonds and other assets, inflating the balance sheet at a time when U.S. and U.K. central bankers are contemplating doing the same.
You Heard It Here First: A Global Currency War is Being Fought – And There Will Be No Victors
Brazil's finance minister, Guido Mantega, recently acknowledged to the global investment community what most trade officials already believed: An "international currency war" has broken out.
And, in this war, there won't be a real victor.
"We're in the midst of an international currency war, a general weakening of currency," Mantega told The Financial Times. "This threatens us because it takes away our competitiveness."
Mantega's comments came just weeks after Japan joined Switzerland in intervening in the foreign-exchange market. But the reality is that the currency war has been under way since 2008.
At least, that's when Money Morning Chief Investment Strategist Keith Fitz-Gerald first warned that countries - most notably the United States - would debase their currencies in a race to boost their exports and keep economic growth afloat.
"The government has adopted a weak-dollar policy," Fitz-Gerald said in an interview in March 2008. "They're sending out a message loud and clear: 'We want you to sell the dollar.'"
By holding the central bank's benchmark lending rate down in a record low range of 0.00% to 0.25% for close to two years now and buying up Treasuries in a policy known as "quantitative easing," the U.S. Federal Reserve is effectively debasing the dollar.
But the U.S. central bank isn't alone.
Seven Ways to Profit From the Worldwide Currency War
If you're like me, and you spend a lot of time perusing financial Web sites in search of the latest global investing news, you've probably started to see a lot of stories about rapid shifts in foreign exchange rates - including some "currency pairs" that have traditionally been rather slow-moving.
Back during the spring, for instance, the news was full of stories about how Switzerland was buying up European euros in an effort to weaken the strong Swiss franc - only to have that country change course and diversify its holdings by purchasing U.S. dollars.
During the summer, we watched as Japan entered the foreign exchange (or "FX") markets for the first time in nearly a decade in order to buy U.S. dollars.
Even South Korea has been a contestant in the currency-transaction arena, with that Asian tiger working to weaken its currency, the won, in an effort to improve its exports. Just yesterday (Monday), the won rose for the sixth-straight day, its longest winning streak in eight weeks, after the nation's foreign-exchange reserves climbed to a record $290 billion.
These events aren't random. But they are related. They're part of a worldwide currency war that's being waged before our eyes - and that will prove very costly to investors who don't recognize the game that's being played. Fortunately, we do - and we're going to tell you all about it.
To find out about those profit plays, please read on...
Controversial House China Tariff Bill Will Take America Down the Wrong Road
The U.S. House of Representatives this week overwhelmingly passed a bill that would enable the Obama administration to impose punitive tariffs on almost all Chinese imports into the United States - a controversial move that's intended to punish China for refusing to revalue its currency.
The House China tariff bill faces opposition in the Senate and from the Obama administration and isn't expected to become law. Let's hope that reluctance continues to hold: This bill is little more than a political con job and is quite possibly the stupidest thing that Washington could do right now.
Not only will this touch off a war the United States literally cannot afford to fight, but it's going to hamstring millions of already cash tight Americans by raising the cost of living dramatically while further eviscerating our already fragile gross domestic product (GDP).
Let me show you why...
To understand the hidden costs of the China tariff bill, please read on...
Exchange-Rate Risk: The Unseen Enemy of U.S. Investors
When specialty-chemicals-maker H.B. Fuller Co. (NYSE: FUL) announced its third-quarter results earlier this month - with earnings and revenue coming in well below expectations - company shareholders suffered an 8% haircut in a single day.
Rising raw material costs appeared to be the headline reason for turbulence at the company. But there was another culprit - a frequent flier in cases of earnings shortfalls, but one that often remains unseen and misunderstood.
I'm talking about exchange-rate risk.
U.S. investors don't realize it yet, but the level of exposure to exchange-rate fluctuations facing big American companies - as well as those based overseas - is steadily increasing. So what happened to H.B. Fuller - and its shareholders - is going to occur with increasing frequency. And in many cases, the fallout will be much more severe.
To better understand the rising exchange-rate risks facing U.S. investors, please read on...
Currency Exchange Rates and Your Investments: What You Don't Know Can Hurt You
You may be facing immense foreign-currency risks in your investment portfolio - and not even realize it.
If that's the case, don't feel bad: You're not alone.
The reality is that most American investors have no idea that currency exchange rates directly affect U.S. corporate earnings, this country's stock market, or the growth rate of our economy.
The bottom line: These investors don't realize that they face some pretty major foreign-exchange-rate exposure in their investment portfolios - as well as with the individual stocks contained in those portfolios.
This exchange-rate exposure can be accompanied by some pretty major risks. Understanding how currency fluctuations can enhance or destroy corporate earnings, the export sector and the U.S. economy, and even your personal wealth will make you a smarter, better investor. To understand how the currency markets are determining the fate of our economy, please read on...