Ambrose Evans-Pritchard: Japan to join currency wars as exports slump

Section:

By Ambrose Evans-Pritchard
The Telegraph, London
Monday, October 22, 2012

http://www.telegraph.co.uk/finance/financialcrisis/9626542/Japan-to-join...

Japan is poised to join the world's "currency wars" as it battles a triple crisis of crashing exports, recession, and a suffocatingly-strong yen.

The country's exports plunged 10.3 percent in September from a year ago, dimming hopes of rapid recovery in the Far East. Exports to Europe crashed 21 percent. Shipments to China fell 14 percent as the Diaoyu-Senkaku islands dispute led to a slump in car sales. Honda, Mazda, and Nissan all saw sales plunge near 30 percent as Chinese consumers boycotted Japanese brands. Nomura said the export slump will push country into full recession.

Stephen Jen from SLJ Macro Partners said the global storm is drifting eastwards into Asia, opening a "third chapter" of the crisis that will last well into 2013. "Many analysts have declared that the low in the global economic cycle is in place. We are not convinced," he said, prediticting a rise in currency protectionism.

... Dispatch continues below ...



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Japan is the awakening giant in this conflict. The yen has risen 30 percent against China's yuan, 65 percent against the euro, and 80 percent against Sterling since 2008. Tokyo is itching to fight back.

Yen strength is Japan's curse. It rises on safe-haven flows during global downturns, choking the economy. This stems from Japan's bittersweet role as top creditor with $3 trillion of net assets.

Hans Redeker from Morgan Stanley says this pattern may soon change as political upheaval in Tokyo and surging public debt of 245 percent of GDP usher in an era of devaluation.

The Liberal Democratic Party (LDP) -- likely to win the Diet vote expected in December -- has written into its manifesto that the Bank of Japan should switch to an inflation and currency target. Pressure is growing for quantitative easing on a much greater scale to break out of the deflationary trap.

Mr Redeker expects the yen to weaken from 79 to 84 by Christmas, reaching 90 next year. "We think Japan will no longer be able to fund government debt (JGBs) from domestic investors as soon as 2015. They will have to print money instead. They can't afford to let bond yields rise because JGBs already make up 25 percent of bank balance sheets. A rise in yields would set off a crisis."

Mr Redeker said the yen has been kept strong by Japanese insurers and pension funds hedging their $1.8 trillion holdings of foreign bonds with currency swaps. They are now fully hedged. This pillar of support has been knocked away.

Klaus Baader from Societe Generale said any attempt to weaken the yen risks disturbing a fragile equilibrium. "A policy of currency depreciation could trigger flight out of Japanese assets. This could trigger a crisis in the JGB market and do more harm than good," he said.

Mr Baader said Japan should copy the Swiss, who fixed the franc against the euro at CHF 1.20 last year and vowed to defend the line by printing whatever it takes. A yen-dollar peg of 85 or 90 would slow the "hollowing out" of Japan's industry without frightening the horses.

Whatever happens, Japan's days as an export superpower seem numbered. Its once vast current account surplus has vanished altogether since the Fukushima disaster last year. The decision to abandon nuclear power has left the country reliant on imported fuel. It may face soon face a structural trade deficit. The workforce is shrinking ever year as the bulge in pensioners grows. The currency has to give.

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Prophecy Platinum Intercepts Best Pt+Pd+Au Grades Yet
at Wellgreen Project in Yukon Territory: 5.36 g/t

Company Press Release
Tuesday, September 11, 2012

VANCOUVER, British Columbia -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) announces more results of its 2012 drill program on the company's fully-owned Wellgreen platinum group metals, nickel, and copper project in southwestern Yukon Territory, Canada. Four surface holes and four underground holes all intercepted significant mineralized widths, ranging from 28.5 meters (WS12-201) and up to 459.5 metres (WS12-193). Highlights include WU12-540, which returned 8.9 metres of 5.36 grams per tonne platinum, palladium, and gold; 1.73 percent copper; and 1.01 percent nickel within 304.5 meters of 0.66 g/t platinum-palladium-gold, 0.20 percent copper, and 0.27 percent nickel.

The surface drill program started in June and has completed 16 holes (assays pending for 12 holes) with two rigs now on site. The surface program continues to progress at a steady pace.

Prophecy Chairman John Lee commented: “Wellgreen is a very large nickel, copper, and platinum group metals project with near-surface high-grade zones. High-grade intercepts will be incorporated into resource modeling and mine planning in the pre-feasibility study. We expect further positive drill results from Wellgreen shortly.”

Wellgreen features a low 2.59-to-1 strip ratio, is situated at an altitude of 1,300 meters, and is only 15 kilometers from the two-lane paved Alaska Highway. Those factors significantly minimize the project's indirect costs.

For the complete company statement with full tabulation of the drilling results, please visit:

http://prophecyplat.com/news_2012_sep11_prophecy_platinum_drill_results....