Deflation has kept a bid under the Yen for 20 years, since the huge load of bad debt denominated in that currency creates demand. The Japanese government took advantage of that bid and ridiculously low long-term rates and has issued unpayable quantities of debt, squandering the nation’s current and future wealth on government jobs and bridges to nowhere, when all they had to do instead was turn their backs on the banks that enabled the 1980s Rising Sun bubble.
Now that sovereign defaults are finally looming on the public consciousness, export markets are shrinking, and the ratio of workers to retirees is still shrinking, it would make perfect sense if the market started to tack a risk premium on all things Yen.
Technically, you can see the weakness of each advance against the USD for the last two years:
Prophet.net
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USD and US T-bond bears take note: the Japanese are a generation ahead of us in the Kondratieff / credit cycle, and theirs may foreshadow our own experience in winter.
If the yen really crashes, it will have a very unpredictable effect on the global mechanics. By observing the demographics, it’s really a plausible scenario although timing is always the issue. Japanese savers are getting old, they are way past their productive ages. Japan has the highest life expectancy among all nations in the world. As those JGBs caught bids from these Japanese savers, it very well could be these very savers who spell JGB’s demise… retirees withdraw their savings for consumption for their retirement. With JGB 10-yr rate @ sub 1.5%, debt servicing costs already eat up 20% of Japanese govt budget. US 10-yr is at 3.7%. Just imagine what JGB 10-yr yield @ 2% will bring to the Japanese economy.
Now… what happens if the yen crashes? Hyperinflation? Will they become the export juggernaut as they once were? Obviously if this happens, China is bound to get seriously hurt, before even mentioning China’s own internal problems. Will the Nikkei finally break its 20-yr downtrend? There are a boatload of interesting questions one can make from the yen’s demise.
The yen behavior since summer has been unusual & a bit puzzling. It doesn’t really play into the “all the same market” scenario, as it was in 2008. The only thing selling off hard at risk rallies is the dollar.