EconomyWritten by Havre On 18 December 2012
Abe’s Election Weakens Yen

On Dec. 16, Japan elected a new government with Liberal Democratic Party (LDP) head Shinzo Abe becoming the next Prime Minister. Abe had campaigned on a platform of “unlimited” monetary easing from the Bank of Japan and a dramatic increase in public works spending.

Japan is going through its fourth recession since 2000 and many are wondering if it will be any different from when Abe was Prime Minister before from September 2006 until September 2007. This go-round, though, Abe’s LDP with a coalition partner controls a two-thirds majority in the lower house of the Diet.

Currently, Japan’s government has a budget deficit of 10 percent of its GDP, with its gross debt of 235 percent of GDP, up from just 68 percent in 1990.

The result on the yen was already anticipated with it falling against the U.S. dollar about 5 percent since mid-November. It is now the most shorted currency for the first time in three years, surpassing the Euro. It has now fallen to its lowest level since April 2011.

A weaker yen is good for Japanese exporters, making their goods cheaper and more competitive, but for Hawaii it could be a drop in daily spending from our Japanese tourists. It also makes the cost of airfare to Hawaii more expensive. It remains to be seen to what extent.

Another policy that Abe ran on was to become more aggressive with China regarding the ownership of the Japanese administered Senkaku Islands in the East China Sea. China had already sanctioned and encouraged the boycott of Japanese goods last September, which had a material effect on companies such as Toyota, Honda, Nissan and Panasonic. There was also a 33 percent drop of Chinese tourists to Japan, adding another hit to the already struggling economy.

Investors around the world will closely watch Abe’s moves as it is the third largest economy, but, even more so, movements of the yen will be followed closely by Hawaii’s tourism industry.

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Havre

Randy Havre has a wealth of experience in the financial industry. In 1987, he established his own full-service stock brokerage firm, which was also registered with the SEC as an Investment Advisory Firm, managing money for the State of Hawaii’s pension fund, among other portfolios. In 1994, he started his first of three Hawaii based Venture Capital Funds. Additionally, he wrote a weekly stock column in the Pacific Business News for 21 years, taught Finance 315 Portfolio Management and Investment Strategies at the University of Hawaii for five years and is on KHON’s Morning News as a business/financial analysis twice weekly. Over the past nine years, Havre has been active in South America doing business development work for some of his portfolio companies, mentoring entrepreneurs and advising investors.

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2 comments
Randy Havre
Randy Havre

Jan 2, 87.27 on a day when the Dow was up 300 points. Aloha

Randy Havre
Randy Havre

The Yen hit 85.49 on Dec 26th, looking to get even weaker. Aloha