The Empire of the Yen
Hans Schicht
From a Different Perspective II:
Japan, China and Taiwan, all three are holding huge dollar reserves. But the underlying reasons for holding are not the same. China and Taiwan acquired their dollar reserves through export surpluses, especially exports to the United States. And both, China and Taiwan see their growing dollar holdings as only a minor evil compared to the great opportunity created to build their industrial base and infra-structure for the future.
Japan's dollar holdings originally accumulated in the same way. That is to say, through merchandize export surpluses. But that kind of surpluses are not the main source for Japan's dollar accumulation any longer. Today, outright financial paper acquisition of dollar denominated assets against yen assets has replaced Japan's export surpluses as the main source for its growing dollar holdings. What is happening is nothing less than pure financial action and has no relation to export and trading surpluses.
Japan's reasoning is not to keep the yen lower vis-à-vis the dollar in order to stay competitive in the export markets, neither to help its banks and neither to support the US dollar on whatever grounds. It would go against all logic if Japan would be persevering buying dollar assets for such reasons, considering the great danger the totally disproportionate mountain of dollar denominated debt papers in its treasury presents. It must be with a far more important goal in mind, that Japan is pursuing its present financial policies.
I cannot think of any reasons for financial cooperation between Japan and the USA. Altruism in support of America and the dollar is not in the Japanese character. America thinks it has Japan under control, but Japan thinks otherwise. Japan has always hated and despised the West. Japan has never accepted its defeat in the second world war and Japan will never forgive the "Japan bashing" and the humiliation its financial institutions suffered when in the eighties the American banks pulled the rug out from under the Japanese banks. For the Japanese, the war is going on. This time not on the battlefields, but on the financial markets, between the yen and the dollar. This yen-dollar battle is subtle, not played in the open by Japan. Smilingly and seemingly cooperating, - careful not to awaken any suspicion - , Japan is preparing for revenge, preparing to slay the dollar and replace it with the yen as the supreme Asian reserve currency.
Till recently the dollar had no trouble maintaining itself as the world's prime reserve currency. But times are changing. The dollar has become over-stretched and overvalued. Mistaken and failed politics have infused world wide doubts about the real power of the United States and kindled the suspicion that the dollar might be nothing else than a paper tiger, sustained only by bluffing and bullying its way.
Challengers to the dollar empire are on the rise: the euro, the yen, and the gold-dinar. And soon the dollar will not be the world's sole reserve currency any longer. Japan wants it place.
Let us go back and look how the dollar managed earlier to achieve world reserve currency status. New York did it by flooding the world with dollars and making the world accept these dollars as assets worth holding, meanwhile not tolerating whatever competition. And how did New York manage to flood the world with its dollars? As long as America was still a creditor nation, by extending dollar loans and credit in whatever form. Later on, once America had turned into a debtor nation, by seeing to it that the ever growing amount of American deficit dollars would not return to the homeland or be presented for payment in real value. And if returned , then only to be reinvested in America's financial markets.
Financial wars are in may aspects like military wars: expand by conquest. To expand militarily, hardware is needed, but to expand financially, only fiat paper and credit have to be created preferentially out of thin air. Where dollars are used is United States' financial territory, where euros are used European territory, and where yen are used, Japanese territory. As simple as that.
Slowly but surely, in a subtle way, Japan is pushing, seemingly off-hand, to replace the dollar holdings of East and S.E. Asia with their yen. Where the US once had to go through the lengthy process of first extending loans and then flooding the markets with US debt paper, Japan, in order to achieve reserve currency status for its yen, has it easy. Today Japan needs nothing else to do, than to substitute the dollars held in the public and private reserves of the East and SE Asian nations with their fiat yen. Lots of yen! And lots more still will be needed till reserve status will have been reached. Japan will also have to prepare for it that all these yen will not return to the mother country. Just imagine, the power and prestige the newly acquired reserve currency status will bring Japan.
Slowly Japan is building its yen empire, not in the least worried about the mountain of dollar paper in its coffers. At some future date, all these dollars will easily be written off with the stroke of the pen against the major advantages the reserve currency status will offer. And the more dollars Japan will have accumulated, to more Japan will be able to hold the USA to ransom.
The crux of the matter for Japan are not the dollars it is taking in, but the quantities of yen it can spew out and have accepted by the markets. And once there will be sufficient yen in foreign circulation to guarantee the reserve status, Japan will be ready to start dumping and trashing the hated dollar down. At that very moment everybody else too will start dumping dollars for yen. The dollar will become zilch and Japan will be able to buy the USA for nothing, winning the final battle of the war.
It has to be well understood however that Japan is not interested in accumulating gold as backing for the yen. Japan's strategy will be following the same pattern as New York for the dollar. Flood as many yen into Asia as possible and do not allow any competition, neither dollars, euros, gold or silver. Asia for Asia and the Asians! And that counts for finance as well as for business! Make no mistake!
But Japan will not be the only upcoming challenger to the dollar to vie for reserve status. There are more countries and regions under the sun playing with the same idea. One day we might even have several reserve currencies functioning simultaneously: the yen for Asia, the euro for Europe and Africa, a "new-dollar" for North and Central America and perhaps a "mercator" for the Mercosur countries of South America, if the latter will ever get their act together. But their time will be short lived, as all will hold nothing else but worthless fiat.
Besides the USA, Japan is not the only country with an anti-gold stand. Although not directly anti-gold, most governments are showing little interest in gold presently. Not even to serve as back up for their currencies, or for a re-introduction of the gold standard. They could not afford so anyhow under the present circumstances. There is little gold left in the treasuries and secondly most governments are anyhow drowning in debt already. As long as they can get away with it, governments will go on imposing their fiat currencies by hook and by crook.
Official rejection of gold does not mean however, that the ascent of precious metals will be delayed. The real future of gold and silver does not depend on governments, but rests on the basic value the ordinary people attribute to it. Once the latter will wake up from years of misleading information and manipulation and once they will see through the maze of the lies, then that will be the day for gold and silver to shine. And the day is not far off.
March 29, 2004
Hans Schicht
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