Is Japan Trapped by its Current Monetary Policy #bankofjapan #japan #shorts #japaneseyen
Gary Brode of Deep Knowledge Investing and Robb Fahrion of Flying V Group discuss the 5 Things to Know in Investing This Week: The No Rate Hikes Next Month Issue
-Japan tries defending the yen to no effect. Now, they’re talking about raising rates again. The chart shows that the bond market is ahead of the BoJ.
DKI Summary:
DKI started speaking and writing about Japan’s pending sovereign debt crisis in October of 2022. Recently, the Bank of Japan (BoJ) has blown through tens of billions of dollars of foreign currency reserves in an attempt to defend the yen. Those efforts tend to be effective for only 24 to 48 hours because they don’t address the underlying problem. The BoJ is now waiting for their version of the CPI to make a decision on potential rate hikes. Officials are openly considering raising rates, a strategy DKI recommended more than 18 months ago. With the US Federal Reserve not about to cut rates, Japan must sacrifice their budget or the yen.
DKI Takeaway:
Japan is an economic powerhouse, but it’s also a small island nation with few natural resources. The only way Japan can afford the interest expense on its massive debt of more than 260% of GDP is ultra-low interest rates. In response, the yen has fallen by over 50% against the dollar in just a few years. That’s made the price of imports expensive; especially oil which tends to be priced in dollars. Making things more difficult, rate hikes could affect smaller Japanese banks which hold large bond portfolios. This mirrors some of the difficulties US banks had in 2023 when higher interest rates reduced the carrying value of bank bond portfolios.
Your links:
This week’s written version of the 5 Things with graphs:
Deep Knowledge Investing Subscription Page: https://deepknowledgeinvesting.com/we…
Flying V Group: https://www.flyingvgroup.com/
#deepknowledge #deepknowledgeinvesting #investingnews #garybrode #robbfahrion #flyingvgroup #dki #investmentresearch #investmentknowledge #investmentstrategy #investingstrategies #value #japan #bankofjapan #banking #yen #japanese #japaneseyen #dollar