Yen, financial tsunami in sight?

The yen is clearly strengthening against the dollar following the latest decisions of the Japanese central bank.

Massive rise in the yen in sight?

Unlike the FED and its widely anticipated rate hike, the BoJ surprised the markets.

As a reminder, the “Quantitative Easing” never stopped in Japan. The BoJ regularly buys government debt securities to keep the 10-year borrowing rate close to 0%.

And the fact is that by flooding its financial system with cheap liquidity for ages, the BoJ has made the yen the currency of the “carry trade” par excellence.

Clearly, investors borrow in Japan to immediately invest abroad where returns are higher. Trillions of dollars of Japanese liquidity flowed out of the country, weighing back on the yen.

So much money that could suddenly return to the fold now that the BoJ wants to be more ” flexible “. Indeed, the BoJ has just raised the upper range of the 10-year borrowing rate. It will now be 1%, against 0.50% previously. Or more soon?

Kazuo Ueda, appointed governor of the BOJ in February, considers it necessary to raise rates to control inflation. A paradigm shift ending the policies that have depressed the yen for decades would see trillions of dollars convert to the yen.

The yen is already up nearly 12% from its 30-year low against the dollar. And around 10% from the eight-year low against the Australian dollar.

“We are about to see a repatriation of assets to Japan, and the figures are really very important”says Sam Perry of Pictet Asset Management. “This trend reversal could turn out to be quite spectacular.”

That is to say a further depreciation of the dollar. The dollar index is at its lowest for more than a year. Bad news when you know that the BRICS are not skimping on their efforts to dedollarize their trade.

Finally, note that Japan’s debt has reached 263% of GDP. And that 6.5% of the debt is held by foreigners. So the rise in rates will not worsen the country’s current account balance.

Moreover, 50% of this debt was bought by the BoJ. In other words, Japan pays itself 50% of the interest. Nevertheless, the bill will necessarily be painful for the remaining 50%.

In the United States, where the 10-year American rate reached 4%, debt service represents nearly 1,000 billion per year.

Or 1/5 of government revenue. Knowing that foreigners hold more than 30% of the US debt (and ~20% by the FED)…

All these exponential trajectories do not bode well for the purchasing power of fiat currencies. Conversely, there will never be more than 21 bitcoins…

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