Yen will be weak with Abe: GS's Jim O'Neill letter to shareholders
Japan, Abe and the Yen!
Which brings me finally to my theme, and I will be brief. From the Plaza Accord of September 1985 all the
way until I joined GS in the Autumn of 1995, I was bullish Yen, and after a brief shift to being temporarily
US$ bullish, I returned to being a Yen bull from 1997 until a few years ago. I was quite chuffed with myself
for understanding the Yen and it was based on pretty simple stuff, Japan’s persistent and strong balance of
payments, especially its trade and current account surplus, and its associated rising equilibrium exchange
All of this has reversed and recently, Japan was reported its first ever current account deficit, or certainly, its
first for many decades. They have a very overvalued exchange rate, a collapsing export sector, an
unreformed domestic economy, a debt challenge that makes Greece’s seem easy to solve, a central bank
that doesn’t try too hard – currently – to reach its inflation target and, once again, a very weak economy. And 4
that is without even getting into the complex issues of its relationship with China and other Asian countries,
that in principle should be as good for them as those countries are for the rest of us. Anyhow, we may soon
see a general election and a return of the LPD, whose probable Prime Minister has told us now 3 times in
the last fortnight that he would force the BOJ, if necessary, to pursue a 3% inflation target. This is the sort of
thing that many were advising Japan from overseas in the mid to late 90’s when so many people mistakenly
lost of lot of money betting against the Yen. Go get all those guys out of retirement as the time has probably
come. The outlook for the Yen is highly asymmetric. It could either waffle around, or could decline sharply in
coming months. It is, in my opinion, the most interesting macro thing out there. I have been getting more
and more negative about the Yen for the past couple of years, and I have, so far, been wrong, but it seems
more and more obvious to me, that the moment is here.
Chairman, Goldman Sachs Asset Management.