The Yen is Killing Sony - Is a PS3 Price Cut Even Possible for 2009??

[alephnull]

NJ5 said:

@alephnull: I've said plenty of times that Sony has a chance of getting helped by the Japanese central bank. I never said their situation is hopeless, just that it's very bad if things continue this way. I can point you to specific posts of mine where I said so if there's any doubt.

It's more interesting and productive of us to argue the probabilities of each scenario, even though this is a very complex matter. One of the reasons why I don't count on the situation improving soon is that the American/European governments seem to be doing all in their power to devalue their currencies, with interest rate cuts, money "printing" and whatnot.

How big an effort would the Japanese central bank have to mount in order to not only cancel out these measures but also prop the dollar/euro further up than their current values?

 

Depreciating a country's currency relative to another is not difficult for a central bank to accomplish. They need only "print" currency and purchase dollars/euros. There are a number of potential caveats.

1) Most countries cannot do this because significant portions of their debt are not priced in their own currency, and deflating their currency increases their debt.

2) Increasing the money supply haphazrdly can stoke inflation.

Japan has neither of these problems and actually has had frequent nasty bouts of deflation. Still, inflation is extremely difficult to quantify much less control, and is determined more by people's expectations (Keynes's animal spirits) than the actual quantity of paper currency in circulation. Even determining what the quatity of "money" is depends on your definition (see M1,M2, etc). The reality is, things like securities, houses, and cars are all forms of money. One could argue that the housing bubble allowed many real estate speculators to partially hijack control of the money supply. The point is, central banks usually try to err on the side of caution. Therefore to counter this what the BofJ normally does is issue "sterilization" bonds to soke up excess liquidity. Of course, that's how they ended up owning over a trillion dollars worth of T-bills which has it's own problems.

3) Other countries can potentially do the same to you kicking off a series of beggar-thy-neighbor depreciations (see the 80s).

4) Other countries can do other things such as put up tarrifs or nationalize your private and public assets.

Japan is extremely sensitive to this last point after the large public backlash against all things Japanese in the 80s in the US when people were burning Japanese cars on TV and such.