boddhisatva kbevans at panix.com
Thu Oct 1 09:20:52 PDT 1998

C. Devine,

I was also searching for an answer as to what international benefit a Fed rate cut might have. It suddenly occured to me that months ago I saw a study asking Japanese business executives what Yen level they though was best for the country (this was during the Yen's drop). They all cited a level against the dollar in the low 130's (which was a stronger Yen than prevailed at that time). I was confused by this and assumed that they had all hedged themselves into that level of exchange rate and didn't want to unwind postitions and get killed or something. Now it occurs to me how much the Japanese buy in raw materials, etc., outside Japan. It could be that the increased profitability on exports is less important to the Japanese than keeping costs low. In an economy that is not expanding investment, this might be a logical stance to take.

Leaving aside Japan, it also may be that for countries like Korea to keep up such high interest rates during a sharp downturn is too destabilizing, although I don't see how even a 100 basis-point move could help them that much. Interest rates in the more peripheral countries are even higher and I don't see how any reasonably foreseeable Fed rate cuts would help them. In fact, it seems to me that so long as the Fed is promising future rate cuts, liquidity will continue flowing into the U.S. bond market in anticipation of capital appreciation, it not interest income.


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