Questions about gold and Japanese finance

[sdduuuude]

OK. I have a question, mostly for Rich, but anyone can chime in.

First of all, thanks to everyone for teaching me so much about macroeconomics. I’ve always understood only the basics, but never delved very deep, as my question may prove.

So, I see Rich post that he is, in the long term, bullish on gold. Yet, I see him link to this article (which I think I barely understood, with the help of which says that “The end of quantitative easing (in Japan) is another factor that will propel a sharp correction in global investment asset values this year.”

Q1:
Seems there is a conflicted message here – bullish on gold, but investment assets could depreciate? Is gold not considered a global investment asset?

Q2:
Also, for anyone – with the Japanese housing market so flat for so long, and the changes afoot in their monetary policy, is now the time to buy real estate in Japan? Perhaps the days of ez credit may be coming to Japan as they put money into their own bond market instead of ours?

[sdduuuude]

So, the Japanese move is an opposing force to other forces acting to push gold higher?

Also, is it unusual that gold rises while housing decreases?

[powayseller]

The Bank of Japan increased bank reserves from 6 trillion yen ($51 billion) to 30 trillion yen ($256 billion) in 2003. Last month, they announced this liquidity will be removed by the end of June.

What was done with the money? Unlike Americans, the Japanese did not borrow it from their banks. Foreigners did. Foreigners borrowed these yen, and bought stocks, pushing up the stock market in Brazil, Turkey, South Korea, Singapore, etc, and bought US bonds, pushing down bond yields.

The article’s reference to assets is later clarified to mean equities and bonds.

“As Japan’s excess liquidity is mopped up, investors that borrowed Japanese yen to fund investments in other countries will find it impossible to renew their swaps. Because international currency and interest-rate swap liquidity is very concentrated in tenors of one year or less (the life of a swap is called its tenor), the majority of these swaps will mature this year. Consequently, investors will be forced to sell the equity and fixed-income assets that these swaps financed. In addition, these investors will have to buy yen to repay their yen loans.

The end of quantitative easing is another factor that will propel a sharp correction in global investment asset values this year. It will also produce substantial yen appreciation against most currencies.”

I think it’s time to get me some yen…..

[Jim Brubaker]

Powayseller can you supply a link to that article? It sounds very interesting, I would like to read more

[powayseller]

It’s the article Rich quoted in his Credit Market Report, and sduuuuude included a link on his opening. I rephrased everything not in quotes.

[Author]

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