Last week the Japanese Yen beheld a six-month low. The world’s third largest economy may have stumbled into a “recessionary phase” according to the Bank of Japan’s October 4th-5th meeting minutes. Similar recessional statements are being uttered concerning the United States of America. Could these two “safe haven” currencies lose their title in the next decade?
The current predicament Japan faces, appears to be approached with a similar mindset as the Fed. You could call this mindset “Loose Lending”, “Panic Printing”, “Silly Stimulus”, “Monetary Madness”, and the list goes on.
Common sense is not as common as it used to be. A “Credit Card, I’ll Pay Later, My Kids Can Pay This Off” mentality is, for lack of a better word, “brainwashing” the world.
One reason Japan wants to employ more easing is to reverse the strong yen. But, quantitative easing hasn’t proven itself effective, and I don’t think it ever will in a long-term outlook.
The Japan election, projected to take place in December, will be interesting to say the least. Yoshihiko Noda, the current Prime Minister is running against the Liberal Democratic Party’s Shinzo Abe. Abe is in favor of increasing monetary easing for Japan.
“Abe has told the Bank of Japan to engage in unlimited easing in an effort to reflate the Japanese economy.” (FOX BUSINESS)
The Federal Reserve has a QE Infinity initiative going on, the Bank of Japan, might as well join the party. Many would call this the buzz-light-year approach “to infinity and beyond!”.
The Yen is a tricky currency, some say “the weaker the better”. The reason is because Japan is a major exporting economy. When prices are lower, Japanese goods are more affordable and competitive.
With the recent Yen speculation of QE and election issues, then Yen has been weakening, making it less attracted in risk averse condition. It’s likely the Dollar will be the primary safe haven for the next quarter or so as the fiscal cliff implications play out.
If Abe does get elected in December, the Japanese road ahead looks like it could be even rougher. Him and the BOJ would likely implement more Quantitative Easing.
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