Thread by @dampedspring

Why Japan and the movements in the Yen are important to macro 101

A number of people have asked this same question which I answered in my private Twitter feed last week. Below is the the thread

The reasons why Japan is important to the world economy are many. They have a 5TN GDP and are a major trader with the world. But the big deal is that Japan has massive accumulated savings of 20TN or more and have a very high personal savings rate. Because there is limited

Local investments as the government owns most of the JGB's and a lot of stocks. Japanese investors are a major player on the world stage and their flows move asset markets and their currencies. The weakening of the yen which I predicted is literally a flow out of poor

Performing Japanese assets propped up by government buying to US asset markets. The Japanese policymakers are trying to stimulate their economy via easing financial conditions where domestics would consume. Inflation is secondary because local demand is weak. The easing also

weakens the currency which in does have a positive impact or increasing competitiveness of Japanese goods. But also generates demand for foreign assets resulting in a spiral. That is what we see at the moment and the BOJ and MOF want some stability and also resent speculation

Either by the legendary Mrs Watanabe or foreign speculators and will intervene to screw the speculators but that won't last. However at some point domestics will sense the end of the the yen selloff and profit take on foreign denominated assets, weakening those assets and

Repatriating money back to Japan. That flow would obviously have an impact on global asset prices. So this large savings pool and what it is doing is critically important to the global markets as is other large pools like China PBOC, Norway sovereign fund, Middle eastern sovs

And British, US, and European savers. Japan is where the action is as the BOJ and MOF are heading in a different direction than their peers.