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Compare the chart in my first post on this subject (in late May) with this chart. In just over four months we have gone from seeing all three of these lines collapsing, with little or no end in sight, to this chart, in which the U.S. and Europe have bottomed and Japan is rebounding at an almost frantic pace (rising at a 46% annual rate in the six months ending in August!). I have a hard time seeing how such dramatic improvements cannot contribute positively to investor and consumer confidence, and how that, in turn, will not reinforce the strength of the global recovery that is now underway. As I've said many times, the recent recession was precipitated by a sudden loss of confidence in the solvency of the global banking system, and with that confidence now being rebuilt almost daily, the recovery from the recession should be fairly dramatic.
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Any thoughts on the Yen? There are a lot of bears out there, for both cyclical and structural reasons. The structural argument (demographically-induced capital outflows) are interesting (and also have implications for JGB yields).
No strong feelings on the yen. It is clearly in "overvalued" territory, but it was much more overvalued the last time it peaked against the dollar in '95. I'm guessing it has some more room on the upside in the short term, just as the dollar looks like it has some room to fall a bit further. But looking long-term, I think the dollar is going to have to move higher against most currencies.
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