The green shoots of the global economy

Slowly and almost imperceptibly we approached the middle of autumn. It has already become noticeably cool outside the window, the last leaves are falling off the trees, but the markets are boiling with passion, reminding us that everything is just beginning in the autumn at the stock exchanges. And it all begins, to put it bluntly, quite positively.

For many weeks in a row, traders and Investors have been torturing themselves and their free assets with one important question: "Can we really call what is happening in the global economy 'green shoots' or are we all just imagining it? We are happy to hear, and most analysts agree with our opinion today, that it seems that the first leaves have indeed sprouted.

And now let us turn our attention to the hero of the occasion, the country that many have now elevated to the status of a benchmark - Australia. Indeed, the Reserve Bank of Australia was the first Central Bank of the G20 countries to dare to tighten monetary policy. By the way, the domestic economic environment was quite conducive to this, if only because Australia managed to avoid recession.

What are the other states to do now? Watch and envy, obviously. Because right now it is hard to name a single country that is really economically ready to follow Australia. Two, the Bank of England and ECBThe majority of the respondents have already confirmed this view, leaving interest rates at previous, extremely low levels at the last sessions, and many are set to continue the "soft defense" and actively help the country and the national currency in all possible ways.

But the government of Japan, the country of our current currency number, is surprisingly calm in the difficult conditions in which the state now finds itself. Having always had a very active stance on the opportunities to intervene in the country's economy and the value of the yen, the leaders clearly prefer to stay away from what is happening and not take any particularly noticeable protectionist measures, although there is every reason to behave differently.

What is Japan's problem?

Let's start with perhaps the most important point of concern for Japan at this stage of the crisis - the rising yen. Many countries have faced this kind of problem sharp appreciation of national currencies amid the strongest decline of the U.S. dollar, but Japan is one of the negative favorites to suffer more than others. The country's low purchasing power, equally low inflation, or rather deflationThe country should be "thankful" for all this, in no small part due to the increasing value of the national currency. And even with this state of affairs the governing bodies of the country remain calm. We suggest to think why?

To begin with, the former liberal government has been replaced by a democratic party with a slightly different view of governance. It is equally important to note the fact that national debt Japan is one of the largest in the world. And in this situation, the opportunity to allow the yen to rise, thereby reducing the real value of debt, could not have come at a better time. Is it profitable? Sure.

No less attractive looks the possibility to actually buy cheaper raw materials, which are necessary for almost all industries and manufacturing in Japan. Naturally, this should eventually have a positive effect on the price of export products, because if we have cheaper raw materials, it means that there is room to reduce the cost in order to increase competitiveness. Maybe that's why we have such an indifferent assessment of the Finance Minister, Mr. Fujii, regarding the already decently falling USDJPY pair.

And what is the result? And in the end, we see that the growth of Inflation in Japan, as is gradually happening in other countries, has to be forgotten. Prices continue to "plummet" and the population continues to get richer, while remembering to save heavily and disregarding all the stimulating tricks of the government. In such an environment not very favorable feel mainly sellers, which do not have enough margin for lower prices at the expense of cheaper purchase of components, and have to "take out the anger" on the workers, making cuts in wages and layoffs. If from the reduction of wages in principle there is little danger in the condition of deflation is not felt, then the fear of possible dismissal discourages Japanese people from shopping even more.

And the most unpleasant thing in this situation is that, judging by the way events in the world economy have been developing lately, there is less and less faith in the strength of the U.S. and the dollar in the minds of traders. Apparently there is not much of it in the minds of policy makers either, as we saw in Jean-Claude Trichet's speech on October 8, when he openly urged the US ruling authorities to take steps to strengthen the national currency. Of course, the relatively slow pace of the U.S. economic recovery, which likely will not allow a higher interest rate above the current value of 0.00-0.25% over the next few months is extremely negative for investors' desire to look towards the greenback with interest, and thus downgrade other world currencies.

We think that each country will look for its own ways out of this situation: some will go with the flow, sticking to their own interests, some will call for abandoning the dollar as a reserve currency. And in the end everyone will be cautiously looking at the United States of America, wondering how much longer FED The money bubble can inflate, and whether "green shoots" will be able to withstand the hurricane that may be formed by its collapse.

At the moment we recommend to work very carefully with the pair USDJPY. If in the short and medium term the probability of continuation of the decrease is high enough, in the long term to confirm the growth of yen we do not yet undertake to do so. First, as we said above, we do not know how America will behave under pressure from other countries. Secondly, the patience of the Japanese government must come to an end at some point, and we will see active interventions into the economy on its part. And third, we are now looking at the situation through the prism of the end of another economic period in Japan, at a time when many companies are repatriating profits, using the tax benefits. So let's not think too far ahead. Let's support the yen now, and then we'll work according to the situation.