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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