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245 comments on DrumBeat: March 14, 2008

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mcgowanmc on March 14, 2008 - 10:08am

China's in charge.

Who do you think is crushing the Yen, to the BoJ's dismay.

"The Fed has been forced to replace the Japan carry trade. Only there is a serious problem with this: Japan has a gigantic FOREX reserves of our debts and currency. We have virtually no Japanese debts or currency in our own reserves. We have run on laughable reserves for years: $60 billion, more or less! All our trade rivals have much greater reserves. So they can adjust things at will vis a vis ourselves. Now, they can't keep our rates super-low anymore due to the US overspending being out of control. Japan alone, can't do this anymore. Despite heroically low rates that are far, far below the rate of inflation in Japan itself. Japan no longer controls 50% of our trade deficit. China has taken over that role."

http://elainemeinelsupkis.typepad.com/money_matters/

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Moe_Gamble on March 14, 2008 - 12:08pm

China's in charge.

You may be right. Or maybe no one's in charge. I read an interesting 2006 paper from a Stanford guy the other day about China's predicament. He sees a limit on the amount to which they can allow the renmimbi to appreciate in value without causing a Japan-style deflation: http://www.stanford.edu/~mckinnon/papers/International%20Finance%20China...

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ET on March 14, 2008 - 12:38pm

Although Japan is still the biggest holder of US dollars. As of Dec 07, 24% vs China's 20%. But it looks like China is catching up fast

http://www.ustreas.gov/tic/mfh.txt

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