The Nikkei 225 (Japan’s major index) is up over 60% since the election of Prime Minister Shinzo Abe on September 26, 2012. Abe has vowed to re-inflate the lagging Japanese economy with a target inflation of 2% through aggressive quantitative easing, setting negative real interest rates, and aggressive fiscal stimulus. So far, investors are in full belief of “Abenomics.”
One of the key results of effective quantitative easing is a depreciation of the Yen. The Yen has depreciated by around 25% vs. the USD and other major currencies. A weaker Yen is exactly what Japanese ministers need to reinvigorate Japan’s enormous export economy.
It’s apparent at least here in the US that Japanese electronics have waned with the rise of South Korean products from Samsung, KIA, and Hyundai. You wouldn’t be caught dead in a Hyundai 15 years ago. Now everything seems alright. Heck, the most popular YouTube sensation is PSY, a Korean pop singer.
Japanese electronics have always been considered of superior quality with premium pricing to boot. Now the difference in quality seems negligible at best, so prices must come down to stay competitive. A depreciating Yen is doing exactly that, while allowing manufacturers to save face by not cutting prices.
But let’s forget about the South Koreans for a while since they aren’t the Asian superpower the United States are worried about. Let’s try and get into the minds of the Chinese.
WHAT WILL CHINA DO?