Yen: Safe Haven, But for How Much Longer?
"The Yen carry trade is long gone. Now that everybody else has the same "zero interest rate policies" the trade has been unwound. The Japanese economy is absolutely imploding as the fatal flaw in the great export experiment is revealed. No amount of so called "stimulus" at home will make up for evaporating foreign demand, especially after fifteen years of bridges to no where has satiated local demand. Japanese debt to GDP ratio is well over 100% and rising."
"Investors typically buy the yen as a haven for their cash because Japan’s current-account surplus reduces the country’s dependence on borrowing abroad."
Here's how it could work: Japan stays in deflationary mode until the yen drops, but that will take quite a while for demand for JGB's to be overwhelmed by supply. After all, all that money that is being repatriated into yen at a rapid pace gets *parked*, esentially, until a run for the exits happens. Think of the massive amount of JGB's out there, and all of the quantitative easing that the BoJ has done attempting to reflate. It would be a long term process due to Japan's trade surplus and the country's high savings rate, but eventually domestic savers will have to use their savings. The inflationary results of Japan's monetary and fiscal policy show up, and the currency loses value rapidly.
