Is Japanese Yen a canary in the coalmine? What it means for Bitcoin
Japanese Yen has set off alarms in the world of international finance and monetary policy. For the first time since 1990, the yen has weakened past the 160 level against the U.S. dollar, representing a staggering 20% loss in purchasing power over just the last year. This historic slide begs the question — is the yen acting as the proverbial «canary in the mine», providing an early warning sign of deeper systemic risks brewing in the global monetary system?
The crisis facing the yen stems from a confluence of factors that have pushed the Bank of Japan into an economic policy corner. With a debt-to-GDP ratio of over 260%, among the highest in the world, Japan has been effectively locked into keeping interest rates at ultra-low levels, near zero, for years. Even as inflationary pressures have built, the BOJ has resisted aggressive rate hikes for fear of making their enormous debt burden even more unmanageable.
However, this policy decision has come at a tremendous opportunity cost — the yen has been savaged on the foreign exchange markets. As the U.S. Federal Reserve and other major central banks have hiked rates to combat inflation, the policy divergence has made Japanese assets increasingly unattractive to global capital flows chasing higher yield. Last month's meagre quarter-point rate rise by the BOJ, the first hike since 2007, proved a futile gesture to halt the yen's freefall. With U.S. monetary policymakers now signalling «higher for longer» interest rates, the pressure on the yen may only intensify from here.
