OFF INTO THE WILD WET YONDER How does this...
China may very well be No. 1 in many areas—spanning everything from gold production to beer consumption—but the tiny island nation of Japan still lays claim to being the No. 1 creditor in the world.
According to Japan’s finance ministry, net foreign investments and assets rose a record 13%, to ¥366.9 trillion (US$3 trillion), in 2014, and with exchange rates overlaid this number increases to a gross of 19%, to ¥945.3 trillion.
The forex (FX) component of this is obviously the biggest factor. The Japanese yen has weakened considerably over the last two years as the Bank of Japan (BOJ) has been printing cash in an effort to rejuvenate an economy which has remained stagnant for over a decade.
Japan’s currency has dropped approximately 28% against the U.S. dollar since the beginning of 2013.
The money printing has juiced Japan’s markets and given rise to an unprecedented Japanese offshore investment hunt. The BOJ is not the only one buying foreign assets either. Other Japanese institutions, corporations, and retail investors have been shoveling money into international markets and investments as well. U.S. stock markets, Malaysia real estate, and a broad spectrum of Myanmar businesses (to name but a few) have all felt the golden touch of Japan’s “invisible hand.”
The United States has especially reaped the rewards of Japan’s money printing—out of the Group of Seven nations, the United States is the most internationally indebted, with Japan playing the role of America’s most generous sugar daddy.
As of the last couple months, the yen has been seemingly held in a channel between a support of 118 and a residence of 120, but as of this writing the yen has broken out and has weakened above 122 to the dollar.
Global currency markets remain unsure about a potential U.S. Federal Reserve interest rate hike. A rate hike would obviously weaken the yen further and may even curtail the BOJ’s stimulus program.
As of late, all bets seemed to have flipped towards an actual rise in U.S. rates after a report on Friday showed that U.S. core consumer prices climbed 0.3% in April, the biggest gain in more than two years.
Nevertheless, if a U.S. rate hike does occur it will be insignificant at best, and perhaps nothing more than an attempt to extend and pretend. At this point, it has become laughable to believe that the Federal Reserve can raise interest rates and increase the burden on the United States to pay back more on all of its debt. It is rather apparent to many that it has become mathematically impossible for these debts to be paid back, especially under any added pressure of high interest rates.
All those worried about Japan snatching back its credit card—don’t be. At this stage of the game, it is all about finding the prettiest dress and lipstick to put on the pig. So long as the money printers continue to print and borrow, then that dress and lipstick purchase will need as much cheap credit and easy money as possible.