Bank of Japan

[Mervin Yeung <tinyeung@xxxxxxxx>]

Hi RTs,  

Last week, Japanese GDP came out with a surprise.  GDP was up.  The
result was that Nikkei shot up and Jap. Gov't Bond (JGB) went down. 
Foreign money started coming into Japanese equity market.  

Jap.Yen went up as a result.  As the spread (yield) between JGB and US
T-Bond narrows, Jap. investors have less incentive to buy US Treasury. 
Also, the rising yen against US Dollar make traders think twice about
doing the yen carry trades.  Hence, US T-Bond went down.  US stock
market, as investors worried about the rising long term interest rates,
went down, too.  

In my opinion, this problem can be solved very easily.  The key is Bank
of Japan.  Bank of Japan can print as much yen as it wants.  My proposal
is:  first, Bank of Japan should print a whole lot of yen, say 9000
trillion yen.  Then, use these 9000 trillion yen to buy US Dollar. 
After acquring US Dollar, use it to buy US Treasury Bonds and Bills.  

The net result of these actions will be:  

1.  US Dollar goes up against Jap.Yen.  Jap. exporters will be in
ecstasy.  If yen also weakens in the crosses, that will be even better. 
Import prices will rise, and Japan will solve the deflationary pressure
(Japan biggest problem in the 90's) right away.  

2.  US Treasury Bonds and Bills will shoot up as a result of these
buying.  The rising interest rate problem in the US will be solved
immediately.  

3.  Sensing that the interest rates, both long rates and short rates,
are going down, US investors will interpret it as the best sign that the
inflation daemon is truly dead, and they will start buying.  A new
(re-new) runaway bull market in US stocks will appear.  

4.  A runaway bull market in US equity market will attract huge capital
inflow from the rest of the world.  US Dollar will then shoot up.  The
scale of this USD's rise will overwhelm our imagination.  Any remaining
worries about US Dollar's potential weakness, will be extinguished.    

5.  The "wealth effect" from this runaway bull market will stimulate the
US economy.  A strong US economy combined with wild-spending US
consumers will save the economies in the rest of the world and support
Asia and Latin America's recovery.  The global recession crisis, once so
threatening, will soon be a distant memory.  


However, this plan has some side-effects:  

a.  US trade deficit will rise.  This will not be a problem as long as
the capital inflow into America occurs.  Politically, if Jap. gov't
promises to keep the T-Bond and T-Bill that they have bought UNTIL THE
END OF TIME, then US gov't should be happy.  

b.  A financial bubble and an economic bubble may occur in the US. (I
don't worry too much about this prospect because we are already in one.
)  


All of the above are my personal opinion.  They should not be used for
trading purpose.  I do hope that Bank of Japan will do exactly what I
suggest.  

All the best!  

Mervin