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Mutual Funds - Mutual Funds.
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Posted by Monitor on December 27, 2008, 8:42 pm
Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says
Dec. 24 (Bloomberg) -- Japan should write-off its holdings of
Treasuries because the U.S. government will struggle to finance
increasing debt levels needed to dig the economy out of recession,
said Akio Mikuni, president of credit ratings agency Mikuni & Co.
The dollar may lose as much as 40 percent of its value to 50 yen or 60
yen from the current spot rate of 90.40 today in Tokyo unless Japan
takes =93drastic measures=94 to help bail out the U.S. economy, Mikuni
said. Treasury yields, which are near record lows, may fall further
without debt relief, making it difficult for the U.S. to borrow
elsewhere, Mikuni said.
=93It=92s difficult for the U.S. to borrow its way out of this problem,=94
Mikuni, 69, said in an interview with Bloomberg Television broadcast
today. =93Japan can help by extending debt cancellations.=94
The U.S. budget deficit may swell to at least $1 trillion this fiscal
year as policy makers flood the country with $8.5 trillion through 23
different programs to combat the worst recession since the Great
Depression. Japan is the world=92s second-biggest foreign holder of
Treasuries after China.
The U.S. government needs to spend on infrastructure to maintain job
creation as it will take a long time for banks to recover from $1
trillion in credit-market losses worldwide, Mikuni said. The U.S. also
needs to launch public works projects as the Federal Reserve=92s
interest rate cut to a range of zero to 0.25 percent on Dec. 16. won=92t
stimulate consumer spending because households are paying down debt,
he said.
U.S. President-elect Barack Obama wants to create 3 million jobs over
the next two years, more than the 2.5 million jobs originally planned,
an aide said on Dec. 20. Obama takes office on Jan. 20.
Marshall Plan
Japan should also invest in U.S. roads and bridges to support personal
spending and secure demand for its goods as a global recession crimps
trade, Mikuni said.
Japan=92s exports fell 26.7 percent in November from a year earlier, the
Finance Ministry said on Dec. 22. That was the biggest decline on
record as shipments of cars and electronics collapsed.
Combining debt waivers with infrastructure spending would be similar
to the Marshall Plan that helped Europe rebuild after the destruction
of World War II, Mikuni said.
=93U.S. households simply won=92t have the same access to credit that
they=92ve enjoyed in the past,=94 he said. =93Their demand for all products=
,
including imports, will suffer unless something is done.=94
The plan was named after George Marshall, the U.S. secretary of state
at the time, and provided more than $13 billion in grants and loans to
European countries to support their import of U.S. goods and the
rebuilding of their industries
Currency Reserves
The Japanese government could use a new Marshall Plan as a chance to
shrink its $976.9 billion in foreign-exchange reserves, the world=92s
second-largest after China=92s, and help reduce global economic
imbalances, Mikuni said.
The amount of foreign assets held by the Japanese government and the
private sector total around $7 trillion, Mikuni said.
Japan will also have to accept that a stronger yen is good for the
country in order to reduce excessive trade surpluses and deficits, he
said. The yen has appreciated 23 percent versus the dollar this year,
the most since 1987, as the credit crisis prompted investors to flee
riskier assets and repay loans in the Japanese currency.
=93Japan=92s economic model has been dependent on external demand since
the Meiji Period=94 that began in 1868, Mikuni said. =93The model where
the U.S. relies on overseas borrowing to fuel its property market is
over. A strong yen will spur Japanese domestic spending and reduce
import prices, thereby increasing purchasing power.=94
http://www.bloomberg.com/apps/news?pid=3Dnewsarchive&sid=3DaFgHlh.Dn4Lc
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