Monday, 27 May 2013

Yen sinking as Japan starts a to-the-death currency war? Deals on Japanese cars and screens coming soon.

Thoughts from the Frontline
John Mauldin makes the case that a once-in-a-lifetime currency war has just started.  Japan can't inflate at home because a 1% rise in bond interest would bring debt service to 80% of the national budget. Running down the yen by 20% a year, every year, will export the deflation problem but the US$, the Euro and the Renminbi will fight back.  This is the opening salvo in the biggest currency war of our lifetime.

Japan is screwed or "painted into a corner" as Mauldin says.  An aging population, shrinking workforce and no prospect of high productivity gains per worker has shut the escape hatch of growth.  The trade deficit has to be covered.  The massive money printing hasn't stopped deflation and Japan's gross debt to GDP ratio is rising to over 240%, an almost unthinkable number.

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