Does it make sense to invest in yen?

- "The sharp rise in the yen since the spring of 2010 is due to the fact that investors have returned to yen-denominated bonds and notes; this has been the case for the People's Bank of China in particular."
- "This strategy is probably linked to (legitimate) concerns about the US economy, but does it make sense?"
- "While Japan posted vigorous growth at the beginning of 2010 due to its integration in the Asian economy, we should not forget:
• the fundamental anomaly of the Japanese growth model: the continuous distortion of income sharing at the expense of wage earners weakens household demand to generate useless profits that are not being invested;
• the financing of the huge Japanese public debt, accumulated because of the sluggishness of household demand, is only possible as long as there are excess domestic savings and domestic investors accept extremely low returns. Population ageing could in the future trigger a changeover to a situation of external deficit, a sharp rise in interest rates, a fall in the yen and a financial crisis."
- "In a medium-term perspective, we therefore believe it is extremely risky to invest in Japanese public debt."

Natixis Flash Economics 407 20100824