Is Japan’s Misfortune the Real Tipping Point?

From time to time the real world where people eat, drink, sleep and have their being, is impacted by the very unreal financial world of speculative markets, and invariably to its huge disadvantage. The bursting bubble of 2007-8 was one such example, which some hoped might be a tipping point, leading to a more civilised future. But not just yet. Now, the speculating elements are picking over the humanitarian disaster unfolding in Japan, to seize the chance of a quick profit. And there is still no sign the ‘madmen in authority’ have the stomach for making any fundamental change. The real world will continue its devastation.

Japan’s earthquake / tsunami / nuclear cataclysm was greeted by “the markets” with a rise in the yen to its highest level against the dollar since the end of the second world war, such a rise further compounding Japan’s difficulties by undermining the competitiveness of its exporters. So why did the yen rise in the face of such misfortune?

Some analysts blame the repatriation of assets and foreign currency by Japanese insurance firms. A proportion of foreign currency assets are usually repatriated during periods of volatility, pushing up the yen’s value, reinforcing its standing as a safe haven. One analyst argued that Japan’s normal current account surplus, arising from its export success, is usually balanced by an outflow of Japanese investments in the rest of the world. But following the earthquake, Japanese foreign investments have been temporarily disrupted, producing an abnormal current account surplus, forcing the dollar value of the yen upwards.

Whatever the root cause, the movements in the yen – its rise and subsequent fall – are magnified many times over by the speculating elements which seize on the chance of quick profits, large personal bonuses and rising positions on fund management league tables. The starkly obvious and distasteful fact is that such benefits are gained from the extreme misfortune of the people in Japan.

So far all the deregulators have done is promote speculative investment, by allowing the ‘quantitative easing’, paid for by the people, to be spent on anything that might earn a quick profit, without any regard to its intrinsic worth. For example, carbon credit securities promising ‘up to 398%’ return were cited in ‘Pity the Poor Banker’ posted here last month. Exploiting the Japanese disaster is a stage more misanthropic even than that. Might Japan’s misfortune not move the ‘madmen in authority’ to consider limiting this socially ruinous activity? The necessary initiatives, to separate real economy banking from the speculative sector, and to inhibit the lattter and reduce its profitability, have been identified in several other posts on this site.

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