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The Japanese Economy Could
Destroy the Dollar

The looming Chinese recession might not be the force that will drag the US dollar down, nor the petrodollar system's end, nor the poorly-performing US economy.

Japan might be closer to a severe crisis than most would believe. Media coverage of this issue is slight, yet the Japanese crisis could go haywire and due to its strong ties with the US economy, its effects could demolish the US dollar.

Business Insider was telling us in 2010 about a horrific, but highly likely scenario that could severely devalue the US dollar. This threat could come from Japan. It's "old news", but that's not the point. We have reached the time when the Japanese crisis' effects could potentially cause international cataclysms.

The monetary stimulus actions undertaken by the Bank of Japan in 2013 could get out of hand and yen hyperinflation could occur.

Business Insider uses the metaphor "boiling water without releasing any steam" to describe the Japanese economy's situation, about which the article says it could have exploded in hyperinflation years ago.

The author of the Business Insider article, Vincent Fernando is stressing the fact that most are finding it inconceivable that an economy struggling with deflation could spiral into hyperinflation.

Many central banks around the World own Japanese yen reserves - the currency having a good reputation, being regarded as one of the most stable currencies in the World.

A runaway inflation in Japan could lead to hyperinflation, experts say - therefore, the yen reserves of foreign countries could rapidly devalue.

The Japanese yen, along with the euro are among the "greenback's" main rivals. Many central banks are avoiding the risky dollars and buying yen.

But now, as the Japanese currency is also being diluted with monetary easing, its reputation has dwindled.
If the Japanese currency gets hit, the effects could propagate and among many, it would bring down the Japanese bond market, which is the 2nd largest in the World. If the Greek crisis had painful effects on the rest of Europe and has propagated as far as Russia, imagine how much havoc a severe Japanese financial crisis could have.

In order to save itself, Japan might resort to selling their US treasuries - they owned over 750 billion US dollars-worth of them (roughly 10 % of the US treasury stock) at the time of the writing of the mentioned Business Insider article (in 2010). Today, that number has reached much higher, Japan owning 1.1 trillion US dollars-worth of US treasuries (as of April 2013).

Oddly, the media is focusing on the Chinese-owned US debt, which is more than 1.2 trillion US dollars-worth.

Should anything cataclysmic happen to Japan's economy, it would easily propagate to the US economy and would have a similar effect as a long-predicted and much feared Chinese crisis!

It's interesting to note that Japan is more than two times more indebted than the United States.
Both countries have mountains of debt, deficits have been increasing after the 2008 crisis and GDP growths aren't getting back the past (desired) levels.
Japan's working age population is declining, primarily due to aging-issues. This is already affecting productivity.

For decades, the Japanese households were able to save the country by purchasing debt. Unfortunately, the working class is shrinking, therefore less and less are able to buy JGB's (Japanese government bonds).

Less people are able to work and produce, more and more are retiring.
The deflationary crisis is being tackled with monetary easing. Japan is trying to obtain a roughly 2 % inflation per year in order to pay its debts and in order to be able to export much easier (cheaper currency is therefore imperative).

Japanese bonds aren't attractive enough to foreign investors, because the yields are only 1.5 %. In contrast: a few years ago, Hungary's government bonds were very attractive and were sold in immense numbers - yields were of 9 % per annum!

Of course, Japan was able to keep interest rates very low at near zero values. Therefore many investors have shunned Japan.

In order to fund itself, Japan feels the need to devalue the yen. This will eventually implicate the forex speculators to avoid the Japanese currency. Mass selling of the yen due to only slight devaluation could ignite a higher rate of devaluation.

In other words, no-one would want to buy a devaluing (inflated) currency and this would decrease its price. Even worse: those already holding Japanese yen would flee to other currencies by selling their yen. This too would increase the devaluation rate. Therefore: a large amount of yen would be in less and less hands.

Among the first obvious effects of the Japanese quantitative easing was the skyrocketing of gold prices (due to the yen's devaluation), which was increased by physical buying as well.

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