Japanese recession -- how will it affect prices?

Peter B

Peter B

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According to Robert Peston's piece at the link below, Japan has unexpectedly crashed into recession. Now I'm never very sure how these things go, but does it look like we might be in for lower prices due to exchange rates or just a need to shift goods? :thinking:

http://www.bbc.co.uk/news/business-30079262
 
The Japanese economy does seem to have suffered from very bad mismanagement, the two most serious cock-ups being "quantative easing" (printing money and hoping that nobody would notice) on a grand scale and a massive sales tax (similar to our own VAT) which has crippled domestic sales.

All this of course on top of zero growth and deflation, for years, which makes debt management impossible...
They may of course reverse their decline by getting rid of their sales tax and increasing inflation. If they don't, then I guess that their only option is to increase export sales via price cuts, but whether that affects foreign consumer prices or not is far from clear.

What I don't understand is this constant press statement that the Chinese economy is in trouble, which it most certainly isn't - the retraction does exist and is due to ever increasing costs, and especially labour costs, but their growth rate is still extremely high.
 
Well having just spent a small fortune in Japan a couple of weeks ago the same items are now nearly 20% dearer, and consequently I ended up paying extra at Customs!
 
hmmm don't know if this is a reflection of things or not but the price on the new sigma 150-600 sport has dropped £100 at wex before they have them in stock ,hopefully a sign of things to come
 
Peter B said:
Now I'm never very sure how these things go, but does it look like we might be in for lower prices due to exchange rates.....
Click to expand...
No.

Exchange rates are fundamentally unpredictable. Every piece of information which is known is already incorporated into the rate, so all that's left is essentially random movement. (Obviously it's not really random, but what I mean is that future movements will happen in response to future events and changes which we can't predict now.)

I looked into this quite seriously a few years ago when the Pound/Yen exchange rate went from about 200 to about 130 in 6 months (late 2008 / early 2009). Camera gear went up 30-50% in price very quickly and it cost me a lot of money. Since camera gear is essentially priced in Yen, I wondered whether it was possible to hedge my rates: for example if I knew I planned to make a big purchase in the summer, I could buy my Yen now and lock in the rate to be consistent with my business case for the purchase. But it turns out that forward rates are virtually identical to spot rates.

In retrospect it's obvious. Suppose people knew that the Yen was going to get weaker in, say, 3 months time. They'd all sell Yen now and buy them back in 3 months time and make a nice profit. But everyone selling Yen now means the price goes down now instead of in 3 months time. And it goes down just far enough to mean that selling and buying isn't profitable, i.e. the rate now is where it's expected to be in 3 months time. QED.
 
Thanks Stewart, I think I'll hang fire until saletime at the end of the year and see what happens then.
 
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