The yen is collapsing against bitcoin which has appreciated by more than 150% over the past year. The Japanese central bank would do well to get rid of American debt.
The JPY at its lowest in more than forty years
We are at 160 yen to the dollar. The yen is at its lowest since 1990, down more than 30% since December 2021. The fall is even 50% since 2012, when a dollar was worth 77 yen.
The reason is the rise in inflation in the United States, which is keeping the Fed from lowering interest rates. The dollar is appreciating now that the rate cut is no longer so certain.
Furthermore, Japan is an island with few natural resources. More than 93% of energy and 60% of food must be imported.
“Japan is totally dependent on oil imports [97 %]so that the rise in the price of a barrel results in a weakening of the yen”declares Tsutomu SomaHead of Forex at Monex Tokyo.
“The situation in the Middle East fuels fears of a new surge in oil prices, which would push the Fed to raise interest rates again”declares for his part Philip WeeHead of Forex at DBS Bank in Singapore.
Unfortunately for the Japanese, it is unlikely that the BoJ will raise interest rates to give some breathing room to the yen. The country's public debt is too high (260% of GDP). The government cannot afford to pay interest.
The rate gap with the United States will therefore remain, in turn preventing the yen from appreciating against the dollar. Which means that inflation will get worse in Japan. Unless you save in bitcoin:
Sell US debt to get your head above water?
Japan is the largest foreign holder of US Treasury bonds. The United States owes him 1,167 billions of dollars. This is much more than China and its 775 billion dollars.
Tokyo could easily raise the yen by shedding its dollar reserves. But it would be seen as a betrayal by Uncle Sam who offers him protection against his historic rival China.
As Michael Saylor says, “Although it is unsaid, the United States' nuclear arsenal comes into play when nations buy Treasury bonds “.
All this being said, the Wall Street Journal reports that the Japanese central bank (BoJ) intervened this Monday to stem the decline. So she certainly sold some US Treasury bonds.
Today, 57% of global foreign exchange reserves ($7.965 billion) are invested in American debt. And if the BRICS shun it more and more, the allies (vassals) of the United States have no other choice but to pay.
We will see how long the Japanese will agree to suffer so much inflation. Meanwhile, the falling yen makes exports more competitive, which could help Japan reestablish its position in electronics.
The world's third largest economy once produced more than half of the electronic chips sold in the world (Toshiba, Nintendo, etc.), compared to only 10% Today. Its stated objective is to increase its semiconductor exports to more than 108 billion dollars by 2030, tripling the 2020 figure.
In short, Japan is banking on technological excellence and seems ready to sacrifice the purchasing power of the Japanese to achieve this. But there is a catch…
Bitcoin vs Dollar
Japan's problem is that by financing the American debt, it is at the same time financing a serious competitor. The United States also intends to become a semiconductor heavyweight again.
Their market share has fallen from 37% to 12% over the last thirty years. Conversely, China today represents 18% of global supply. Its semiconductors are not yet the latest generation, but the technological gap is closing rapidly.
The American Congress therefore voted in 2022 for the Chips and Science Act to catch up. The law provides the Department of Commerce with a budget of $53 billion to revitalize the United States' position in semiconductor research and manufacturing.
Japan is therefore committing hara-kiri by financing a direct competitor in the technological race. It will always be very difficult to compete with the Americans as long as they benefit from this exorbitant privilege.
This is why nations would be better off keeping their foreign exchange reserves in bitcoin rather than US Treasuries.
Japanese savers who followed this strategy do not regret it. Bitcoin is up 1150% against the yen over the last five years…
Maximize your Tremplin.io experience with our 'Read to Earn' program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
