Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Japan Needs a Weaker Yen, and How You Can Play It

Currencies / Euro Jan 30, 2011 - 10:46 AM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleStandard & Poor’s downgraded Japan’s sovereign debt rating this week. It was the first cut in Japan’s rating in nine years. Japan now joins Greece, Ireland, Portugal, Spain — all of which have been downgraded in the past twelve months; hardly the kind of company a country wants to keep.

I’ve said many times that in a world mired in debt and deficits, it’s only a matter of time until Japan has its turn under the spotlight of global scrutiny. And with this downgrade, it could be sooner rather than later.


Of course, there’s been no shortage of scrutiny toward the U.S. fiscal situation, given the massive policy responses to the financial and economic crisis. There’s been speculation of imminent bond market collapse, hyperinflation and an exit of the dollar — so far, none of it has happened.

In Europe, however, the chatter has already turned into crisis, as bond market vigilantes have expressed their view on the unsustainable sovereign debt situation in Europe through a mass exodus. Now the European Central Bank and the European Financial Stability Fund has become the lender of last resort to keep the ailing euro-zone members breathing.

But Japan could make the sovereign debt crisis in Europe look like the opening act …

Japan’s massive debt load is well known. As shown in the chart below it’s expected to reach twice the size of its economy for the second year running — double what the Bank of International Settlements (BIS) considers a frightening level of government debt.

General Government Debt

That’s far and away the largest debt load of any economy in the world, except Zimbabwe. And it’s only expected to get worse. In fact, according to the International Monetary Fund, Japan’s government debt will reach a whopping 246 percent in 2014.

But any questions about the sustainability of Japan’s debt situation, regardless of how bloated it is, always tend to be dismissed with this explanation: Japan can continue to bury itself in debt because the Japanese citizens and private sector hold the lion’s share of Japanese government debt … i.e. they fund themselves.

To me, it looks highly unlikely that this dynamic can continue, based on three fundamental hurdles in Japan …

Fundamental Hurdle #1 — Declining Savings Rate

Japan has historically been a nation of savers. The savings rate in the 80s and early 90s had been steadily over 10 percent, higher than any other developed country. That has allowed the Japanese government to sell nearly all of its bonds to its citizens and institutions … to the tune of 94 percent of total outstanding public debt.

But since Japan’s economy went into stagnation in the 90s and given that interest rates for 15 years have hovered around zero, the savings attitudes in Japan have shifted. In fact, the savings rate is now lower than in the U.S. — a nation considered grossly addicted to spending, not saving.

Here’s the chart on personal savings in Japan and the U.S. …

Japan and U.S. Savings Rate

Now, look at the next chart, and you’ll see …

Fundamental Problem #2 — Declining Population

While savings rates have been declining in Japan, so has its population, putting more pressure on the absolute quantity of savings. And it’s expected to get worse. The projection for Japan’s population shows a big fall over the coming decades due to its ageing demographic.

National Institute of Population

And finally there’s …

Fundamental Problem #3 — Non-Competitive Interest Rates

With debt expected to keep growing and revenues and savings expected to decline, Japan will have to turn to the international markets to find buyers of its debt to keep its economy breathing.

But there’s a problem with that scenario: Japan’s interest rates don’t remotely match the risk!

Japan’s 10-year debt pays just 1.2 percent. Apparently that’s enough for loyal Japanese investors. But that won’t cut it for attracting international capital. Debt in other competitive advanced economies, like Europe and the U.S. are nearly three times that rate right now.

What’s the investment play here? I think we’ll see a significant fall in the Japanese yen.

A weaker yen may not be the solution, but it’s certainly the clearest move Japan can make toward managing this crisis.

The easiest way to participate in a falling yen is through the ProShares UltraShort Yen ETF (symbol YCS). This ETF is designed to gain 2 percent for every 1 percent fall in the value of the Japanese/U.S. dollar exchange rate.

Regards,

Bryan

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in