Wow–that yen!

The darling of the week on the global financial stage was that crusty old man, the yen. He’s had a shot of financial Geritol, from the looks of things, and climbed to a six month high against the Yankee dollar. The yen also hit an all time high against the Euro, which doesn’t surprise me because the Euro is the most pathetic thing to come out of Europe since the Renault Le Car.

Here is Le Commonwealth, a strong yen is happy news for us, since it makes our prices look cheaper to Japanese tourists. And, speaking of looking, I had to give my data a second, even a third, glance when digging up some data so share with you, since the yen’s rise has been so dramatic that the numbers can’t be right. But I suppose they are right, so here we go:

The yen is trading at 112 as I scribe these words on August 19. One year ago today, at noon, New York time, (which would be August 18 for them, incidentally) the yen traded at 145 to the dollar. Which means, over this year, the price (in yen) of buying stuff in the Commonwealth (which is priced in dollars) has fallen 23 percent.

Cazart: 23 percent! That’s a major move. Like sprouting a beer belly, it sort of creeps up on you so slowly that you don’t really notice it until somebody calls it to your attention.

Why is the yen so strong? Oh, we can look at the conventional wisdom, but it’s no real help this time around. Conventional wisdom says the yen ran up because people in the United States and Europe are optimistic about the Japanese economy and want to invest there. They would, therefore, convert dollars (or those worthless Euros) into yen so they can purchase Japanese securities. This would bid up the price of yen, making it stronger.

Which makes perfect sense from an exchange rate mechanism standpoint, but we would expect to see a concurrent run-up in the Japanese stock market then. Have we? No. So: I don’t buy the conventional wisdom.

There is a spooky, even paranoid, contrarian idea (I’m pretty good at coming up with those) worth floating: If Japanese companies are in deep financial trouble, some of them might be trying to raise cash by dumping their international holdings and bringing home the proceeds as yen. This, too, would strengthen the yen.

As always in these matters, U.S. inflation is sort of a secret little force. The last inflation figure was hailed as good news, a “benign” 0.3 percent increase in prices for the month. I don’t think that’s so benign; if we project that rate of increase for 12 months we get an annual increase of 3.66 percent (yes, 3.66, not 3.6, because rates of growth are exponential animals).

Indeed, the inflation monster could be stirring from his slumber, and it likely has caused folks to want to shy away from the dollar a bit, or at least to the extent that the yen looked like a safer haven.

But why look a gift horse in the mouth? The mighty run up in the yen is good news for our fair shores. It can’t rescue us from the total economic mismanagement of the Commonwealth and the insanely anti-business attitude, but it is a positive factor worth noting.