For years, experts have been predicting the demise of the Japanese yen. And for years, the yen has hung on, defying the odds. But make no mistake: the end is near. Japan’s currency is on the verge of collapse, and when it does, the ripple effects will be felt all around the world. Here’s a look at why the Japanese yen is doomed, and what effect its collapse will have on the global economy.
The writing is on the wall…
The writing has been on the wall for years. Since the early 1990s, Japan has been in a state of economic stagnation. Deflation has set in, and wages have failed to keep up with inflation. The country has amassed a staggering amount of debt, both public and private. And its population is aging rapidly, with more retirees than workers to support them. All of these factors have put immense pressure on the Japanese yen.
And yet, despite all of these headwinds, the yen has remained relatively strong. Until now. In recent months, the yen has begun to crumble. It has lost ground against major currencies like the US dollar and euro. And if current trends continue, it is only a matter of time before it collapses completely. When that happens, the global economy will be sent into shock.
The Yen Shockwave…
There are a few reasons why the collapse of the Japanese yen will have such an outsized impact on the global economy. First of all, Japan is the world’s third largest economy. Its currency plays an important role in global trade and finance. It’s debt is certainly one of the highest.
The BoJ’s balance sheet is currently about 125% of Japan’s GDP, which is already dangerously high. However, it’s important to keep in mind that this number doesn’t include the government’s debt, which is an additional 227% of GDP! So when you include both the public and private sectors, Japan’s debt to GDP ratio is a staggering 352%!
And secondly, its debt problems are massive – totaling more than $9 trillion. That’s more than twice the size of Greece’s debt crisis! To put this into perspective, Greece—a country that is often considered to be on the brink of financial collapse—has a debt-to-GDP ratio of “just” 177%. And even that number is considered unsustainable by most.
If Japan defaults on its debt, it could trigger a wave of defaults around the world – sending shockwaves through the global financial system.
So what does this all mean for you? If you’re an investor, it means that you need to be very careful about where you put your money. The collapse of the Japanese yen will cause havoc in global markets, and many investments will no doubt be caught up in the fallout. If you’re a financial planner or analyst, it means that you need to start preparing your clients for what’s to come. The Japanese yen is heading for a fall – and when it does, it’s going to take a lot of people by surprise.
No, there will NOT be a “soft” landing…
The end is near for the Japanese yen. The currency is facing mounting pressure from all sides, and it is only a matter of time before it collapses completely. Unfortunately, given the political gridlock in Tokyo, it doesn’t seem likely that any meaningful reforms will be enacted anytime soon.
So investors would be wise to diversify their portfolios away from yen-denominated assets before it’s too late. When that happens, prepare for shockwaves to ripple through global markets as investors scramble to protect their assets.
