For years Wall Street used Japan’s zero interest rate policy to create what is known as the Yen Carry Trade, and manipulate the difference in currencies to profit from the buying of assets using the weaker currency. But with President Donald Trump seeming to want the dollar to weaken under his administration to aid in the lowering of America’s trade deficit, a side effect of this could also include money rushing into the U.S. to invest in actual businesses.
Under President Obama, the U.S. forced Prime Minister Shinzo Abe and the central bank to swap out trillions of yen within their national pension fund and use that money to purchase U.S. debt. And with Japan holding well over a trillion in U.S. Treasuries that are as good as cash, the groundwork may be opening for Japan to take those T-bills and use them to invest in Trump’s grand infrastructure plan.
According to Japan’s Nikkei, infrastructure investments in the U.S. by Japan’s GPIF will feature heavily in the economic cooperation package to be discussed at next week’s summit in Washington between the two countries’ leaders. The stated goal is to create “hundreds of thousands of American jobs”, in keeping with U.S. President Donald Trump’s agenda, and deepen ties between the two countries. The unstated goal is to avoid Trump lashing out at Japan as a currency manipulator, and putting in peril Japan’s QQE “with curve control” experiment, which is the bedrock of all Abenomics (as further expained in the following Nikkei piece).
Japan has grown nervous that after Mexico, China and Germany, it may be next nation to find itself in Trump’s spotlight, something Trump hinted at yesterday during his meeting with pharma CEOs when he said that “other countries take advantage of America by devaluation,” and then directly named China and Japan as “planning money markets,” presumably implying manipulation.
As such, Japan’s prime minister may be simply offering up billions in pension fund capital as a source of capital for the upcoming Trump infrastructure projects to placate the president and avoid a far more dire outcome, should Trump launch currency or trade war with Japan. Whatever the logic behind Abe’s thinking, new cabinet-level talks discussing trade policies and economic cooperation agreements are also on the table. – Zerohedge
With pension funds being unable to collect any type of decent return due to the world running on policies of zero or even negative interest rates, the idea of taking this money and investing it as capital in what would bound to be government backstopped projects is a superb way to not only provide Trump the needed funds to pull off his construction plans, but also ensure a decent return for the Japanese people.
With the advent of NAFTA, GATT, and the push for globalism, American companies have off-shored the majority of their production, even to the point where there are few industries domestically able to fulfill the requirements that will be necessary to be a part of the Trump Administration’s infrastructure spending. And this means that there are now new opportunities for foreign businesses and investment funds to invest capital in the United States, and provide wages and jobs to the same people that will eventually spend that money buying Japanese and other products.
Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.