The yen was once known as a safe-haven currency for investors to protect themselves in case of general market instability or a decline in other currencies, but those days are gone. Stable governments and consistent (and low) interest rates are some of the driving factors, but it's ultra-low interest rates that undo the yen's “safe haven” status as gold maintains its protective properties and soars. The policy will probably be lifted. .
Both gold and the yen benefit from investors looking to keep their cash safe during times of high risk. However, Japan's ZIRP policy has lasted so long that the economy is unable to cope with even small increases in borrowing prices without causing disruption. As seen below, the yen is currently in free fall against gold as it is hemorrhaging purchasing power.
Gold's 6-month rise against the yen
If this is what happens with interest rates between 0 and 0.1%, imagine what would happen if rates rose even modestly to 1%, such as the significantly higher interest rates that would be set by the free market if central banks did not raise rates. please try. lever.
And despite once being known to have a correlation with gold, the divergence between the two supposed “safe havens” has become decisive and dramatic since Japan started raising interest rates. ing.
#Money Japanese Yen and Yen/Dollar Prices since 1970 (April 23, 2024) – From https://t.co/NjtSzxxNhA pic.twitter.com/7SkCZ6wqM3
— 🇪🇺 🇲🇨🇨🇭Dan Popescu🇫🇷🇮🇹🇷🇴 (@PopescuCo) April 24, 2024
It is currently at a 34-year low, and there are rumors that the Bank of Japan may intervene to support the yen. Caught in the middle, bond yields will have to keep rising to attract foreign investment, which will also put upward pressure on EU and US bonds. And even now, neither the European Central Bank nor the Fed can afford to pay the interest payments without borrowing more money.
Since the beginning of the year, the yield on 10-year Japanese government bonds has continued to rise.
Japanese government bonds: 10-year yield in 2024
Japan is also the largest holder of more than $1 trillion in U.S. debt and could be forced to start selling its holdings to prevent a complete collapse of the yen. If Japan dumps US Treasuries to save yen, yields will rise, encouraging yen carry trades. It won't save Japan's collapsing currency. And with inflation so high that the world's central banks cannot control it, there is nothing to stop gold's continued upward trend against fiat currencies.
Of course, the US will do everything in its power to prevent Japan from unloading US debt, including launching new quantitative easing. With the Bank of Japan trapped, the only “solutions” it has, and the only responses that foreign central banks can take, will all lead to a vicious cycle that tears the system apart and crushes the global economy.
The collapse of the yen is a prelude to the collapse of the national debt, which will begin in earnest. In the US, inflation has no choice but to rise because the Fed would rather devalue the dollar further than raise interest rates high enough to stimulate saving rather than borrowing. Both Japanese and US central banks are trapped, partly by themselves and partly by each other.
The Fed, while acknowledging that inflation is out of control, wants to start printing more money rather than letting Treasury yields rise too much. Peter Schiff said in a recent interview with Anthony Crudel:
“…Rather than win the war against inflation that would cause a deep financial crisis and force the U.S. government to default on debt and cut spending, the Fed intends to monetize debt…preventing it from having to make such political choices. It’s for good reason.”
The yen has exceeded savings, and even if the Bank of Japan were able to narrow the gap in the short term, gold would outperform it. However, both the yen and the US dollar will end up in the dust as they tend to eventually trend toward zero in the long run compared to the yellow metal.
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