YEN, NEW REFUGE CURRENCY?
In a recent FPRI round table discussion of East Asia, the Japanese representative bemoaned Japan's irrelevancy. She should not have. Japan seems to be well on its way to replace Switzerland as the new economic safe haven. It may not be an exciting position to be in but it is a very safe one. Just ask the Swiss who have not only been able to stay out of three world wars but to benefit from them.
Now the Swiss banks, like the rest of the Western banks, are in trouble and the Swiss currency is falling behind the Dollar and the Yen. Or, just as likely, it is another sign that the global economic hub shifted to Asia. The FT reports:
When global markets are volatile, the Swiss franc normally rises because it is regarded as a safe haven. Not this time.
The currency’s limited role in the global carry trade, deep interest cuts from the Swiss National Bank and concerns over Switzerland’s banking sector all threaten to destroy its appeal as a refuge as volatility grips global markets.
The loss of status can be seen in the fall of the franc against both the dollar and the yen since the collapse of Lehman in mid-September. The Swiss franc is down 7.5 per cent against the dollar and down 15.5 per cent against the yen.
Yes, the Dollars unfortunately is rising (killing American exports) but the Yen is doing even better. The Dollar may be too important to fail but is sure to weaken given US geometrically growing debt. The Yen, on the other hand, is issued by a debt free country. Of course, a strong Yen also means continued economic stagnation in Japan.
Oh, yes, the rescue of Citi meant a major strengthening of the Swiss Frank. So, it ain't over just yet.
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