NEW YORK ( TheStreet) -- If you have paid any attention to the financial markets at any time in the last three months, you would know about the George Soros' big yen short.The legendary investor sold his SPDR Gold Shares (GLD) holdings fast and furiously to partly finance his short yen position and made a cool $1.2 billion in profit (unrealized as of his December regulatory filing). The whole world has joined in.
But unless you follow the Japanese economy, you might not know that Japan has consistently run a trade deficit since early 2011 (see the chart below, generated at TradingEconomics.com). The market's thinking is displayed by the dramatic rise in the Nikkei stock index, which has occurred in lockstep with the decline of the yen. Cheaper currency equals more exports, which equal a higher stock market. This is so simple an idiot would know it. I have never bought into this currency war business, at least not in such simple terms. I mean, if economics were so simple, any idiot could be the head of a central bank. OK, that's already happened -- never mind. Japan needs to import practically all resources, and would need to import even agricultural products if not for the stellar protectionist policies. Chinese manufacturing involves a large portion of value-added remanufacturing, importing components (along with raw materials) and exporting assembled products. Sensitivity to exchange rates in these economies, I suspect, is much smaller than the common misconception. Furthermore, the sad fact is that Japanese economy has long lost its core competency. The nation completely missed the boat on the Internet revolution of the 90's and then on the mobile revolution. It also failed to hold ground in other industries -- even on TVs when flat-screens swept the world.