Weak Yen Buys Profits; China May Hold the Line

People wonder what Japan gets for its weak yen. As pointed out by Lang Xianping this week, it buys profits.

Toyota raises FY profit forecast by nine percent on weak yen
Toyota Motor Corp raised its full-year operating profit forecast by 9.1 percent on Wednesday as a sharp decline in the yen increases the value of repatriated earnings and makes up for lower vehicle sales.

The world's biggest automaker now expects operating profit of 2.50 trillion yen ($21.87 billion) for the business year ending March 31, rather than the previously forecast 2.30 trillion yen, thanks partly to a 135 billion yen contribution from foreign exchange gains. It sees sales at 9.05 million vehicles instead of 9.10 million.

Sales down, profits up.

Japan's policies will lead to disaster, but in the near term you have to respect the way people respond to incentives. Gold is being sold off because yen printing is "bullish" for the dollar in relative terms, but it could also trigger a global deflationary crash worse than 2008. Long-run, gold is going to return to safe haven, monetary status, but it will take major pain before it gets there.

China is discussing neutrality in the currency war (see Lang Xianping link above). China did not devalue during the Asian Crisis of 1997 and re-pegged to the dollar in 2008 to avoid devaluation. It would be hugely beneficial for China in the long-run to hold the line again because it would gain a lot of credibility as a safe haven currency (while also taking some of the load off of the U.S.). It might mean crippling deflation in the short-run though, depending on how the global economy performs in the next couple of years.

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