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Japanese Yen at 15 year high.

Friday, October 8, 2010

I have been following news reporting on the strength of the Japanese Yen as well as the actions taken by Prime Minister Naoto Kan's team.  I am, naturally, very interested in economic and financial news from the Land of the Rising Sun as I am vested in Saizen REIT.

I applaud Bank of Japan's (BOJ) decision to cut its interest rate to zero recently.  This would, in theory, make credit cheaper and more readily available in the country. This would encourage borrowing and could possibly give the economy a shot in the arm. However, taking note that the interest rate was near zero to begin with (at 0.1%), cutting its rate to zero could have limited positive effects.

For investors in Saizen REIT, a strong Yen is good because we receive income distributions in S$. However, a strong Yen is not good for Japan as, being an exporting economy, a strong Yen reduces Japanese companies' competitiveness. As Japanese MNCs repatriate earnings back to Japan, a stronger Yen reduces the value of repatriated earnings. A stronger Yen could also propagate the deflationary spiral which Japan is suffering from.

While, as investors in Saizen REIT, we want to have a strong Japanese Yen, we want it strong enough to give us good returns (i.e. an attractive yield on our investment) but we do not want it so strong as to jeopardise the well being of the Japanese economy as that would, in time, have negative ramifications for Japanese residential real estate.

Latest update:
The dollar was trading at 82.36 yen in Tokyo midday.
08 October 2010 1231 hrs, CNA.

Related post:
Japan's debt issue and Saizen REIT.

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