The long-term effects of the Sept. 11 terrorist attacks in the U.S. on the global economy and financial markets will be limited, despite the negative sentiment prevailing at many bourses, according to a former Tokyo branch manager for J.P. Morgan.
Panic-selling and market pessimism, as seen in the recent falls of the Dow Jones industrial average and the dollar, are only short-term phenomena, said Takeshi Fujimaki, a well-known trader. He said markets will stabilize in the long term.
Fujimaki, who advised a U.S. hedge fund handled by global investor George Soros from April to October last year, said in a recent interview that his 21 years of experience as a bond-currency trader tell him not to be swayed by political or social upheaval.
He acknowledged the attacks would have a microeconomic impact, worsening prospects for the reinsurance and airline industries and discouraging shopping at department stores.
But the downside risks will be mitigated by positive factors, he said.
“Who knows, maybe people will instead turn to Internet retailers for shopping,” he said. “The cellular phone industry might be boosted, too, because their importance in times of disaster was highlighted by the attacks.”
Fujimaki recalled his experience in riding the tide of political events. Immediately after the outbreak of the Persian Gulf War in 1991, for example, he thought the market had not taken the war into account and acted on the textbook principle: Buy dollars in times of emergency.
“The dollar rose for 30 minutes after my action, but fell soon afterward,” he said. “I was slapped with huge losses and it took me three months to recover.”
In 1994, when decades of rule by the Liberal Democratic Party ended and Tomiichi Murayama of the Social Democratic Party was named prime minister, J.P. Morgan’s New York managers became so worried that they ordered Fujimaki to cancel a business trip to China and stay in Tokyo. In the end, the market didn’t move a bit, he said.
Furthermore, the Great Hanshin Earthquake in 1995 did not change the fate of Japan’s economy, Fujimaki argued, despite widespread speculation then that the disaster would help lift the economy out of its postbubble doldrums by spurring reconstruction-related demand.
As for the current Japanese economy, Fujimaki, now a university lecturer, said the short-term solution to Japan’s economic problems is to weaken the yen and thereby cause inflation.
“Deflation is the biggest problem the Japanese economy has right now,” he said. “Deflation contributes to a continuing decline in the value of land, which threatens domestic banks by depreciating the value of real estate secured as collateral and increasing their bad loans.”
He urged more people to realize the importance of currency policy and lobby for a weaker yen. Farmers, for example, should complain to the Finance Ministry for causing an influx of cheap products from abroad.
“When (an affiliate of) East Japan Railway Co. recently marketed ‘bento’ (boxed lunches) using rice imported from the U.S., (Japanese) farmers slammed the JR unit,” he said. “But in fact, the group should have complained to the Finance Ministry. If the yen fell to the level of 240 against the dollar, U.S. rice would become too expensive, promoting the use of domestic rice.”
The yen’s depreciation would also lower Japan’s labor costs in dollar terms and would alleviate discrepancies in wage levels between Japan and the Third World countries, increasing Japanese firms’ international competitiveness, he argued.
“I say cut the yen, not the workforce,” he said.