U.S. Financial Markets Haunted by Japanese-German Relations
Julia Martinez, Ap, THE JOURNAL RECORD
Japanese-German relations, once a mighty military threat vanquished by America nearly a half-century ago, have come back to haunt the U.S. financial markets. This time the weapon is plenty of money.
Investors from Japan, the largest single source of foreign capital to the United States, are shifting their sights to attractive European markets, namely booming West Germany, which is emerging as the most powerful economic force reshaping Eastern Europe.
The thought that the enormously wealthy Japanese may be hanging back from U.S. investments dampened the stock market's mood this past week and injected new anxiety into the market for Treasury securities.
An impending $30 billion Treasury auction this week could provide a better clue about the extent to which Japanese investors are willing to keep financing America's federal deficit, economists say.
Poor participation would suggest that interest rates must rise to attract buyers. This would make bonds more competitive with stocks and would raise borrowing costs of American corporations, lowering their profits.
For weeks Japanese investors have been lightening up on American equities, economists say, partly to raise cash for margin calls on their own heavily leveraged stocks at home. Japanese stocks have been falling mainly in response to rising interest rates and inflation pressures.
More significantly, Japanese investors have discovered potentially more lucrative markets in West Germany since the Berlin Wall came tumbling down.
``The Japanese have taken money otherwise going to buy U.S. stocks and bonds and are investing in West Germany,'' said economist Mark Killion with DRI-McGraw-Hill Inc. in Lexington, Mass.
West Germany is particularly attractive to Japanese investors for two reasons: exchange rates - the mark is stronger against both the dollar and the yen; and political changes in Eastern Europe, which are expected to enormously benefit the West German economy. Both are pushing up West German interest rates.
``The highest rates of return available today are in Germany,'' said Marc M. Goloven, an international economist with Manufacturers Hanover Trust Co. …