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  • Writer's pictureEdward Ballsdon

Japan - Quick update of debt trap symptoms

REPORT CONTENT AND CONCLUSION:


  • Japan is in a debt trap and the BoJ’s choice has been to part finance the large deficits, at the expense of currency debasement.

  • The alternative would be for private savings to do so, but that would be at the expense of private sector asset valuations, and a return to the lost decade.

  • Japanese inflation has tremendous disinflationary forces in the months to come – these will be there even if the Yen stands still.

  • As the core rate declines below 2%, it will be come evident that the BoJ will be limited in its ability to raise rates.

  • Thus the circle will be squared, probably leading to further currency debasement which will keep inflation from dropping too much. These are indeed the dynamics of a debt trap….

  • Preferred investment view remains positioning on the Yen rather than equity or fixed income

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