Japan’s Printing Money To Solve Inflation – This Won’t End Well!

So things are looking real green for Japan their currency intervention isn't Working they are burning through their Reserves and now they are printing money To fight inflation we have Japan Unleashing a 200 billion dollar stimulus Plan to counter inflation yes we have Reached Twilight Zone economics where You do more of something that will Ultimately cause higher inflation in Order to solve the original inflation Problem now most of the money is going To flow into stimulus for household Electricity and gas bills plus we also Have coupons for families with new bonds To offset the higher cost of living now As Noble as this sounds this is going to Expand the money supply in the country Directly this is basically the stimulus Injection the United States did back During the 2020 lockdowns and it Resulted in soaring inflation a year Later now obviously the magnitude isn't As bad as the trillions of dollars Printed in the past but it is not Exactly a great move to solve Japan's Problem long term even Japan's Finance Minister Suzuki knows that this isn't a Good idea he mentioned there's no doubt Our response is making the physical Situation more severe we must conduct Responsible economic and fiscal Management and this is very Contradictory because on one hand you

Are preaching physical responsibility But on the other you are still spending 29 trillion new Yen and 80 percent of The stimulus is going to come from that We have to understand that this move is Inflationary in the long term you are Borrowing money to solve inflation Caused by the currency depreciation of The Yen and this is caused by the world Selling of the Yen because Japan refuses To hike rates now Japan has always been In a difficult position they have been Trying to stimulate the eye economy for Years by keeping interest rates low but The banks are not landing and the Japanese people they are not spending And because of this Ultra loose policy And stronger dollar Japan's inflation is Getting out of control yes they wanted Higher inflation to stimulate the Economy and now they are getting it Through a currency devaluation now the Bank of Japan like all other central Banks they have a mandate to achieve Price stability and like the fed their Target inflation is two percent and they Are doing it through yield curve control That's a fancy term for selling and Buying bonds to control rates and guess What inflation is now at a 33 year high Consumer prices have risen by 3.4 Percent which is a lot in a country used To low inflation for a long time and This is likely going much higher because

There's so many ports of gasoline being Thrown headed inflation fire we still Have the boj committed to buying bonds And this new spending by itself is going To inject new money into the economy This is going to increase demand and Keep inflation High plus the Japanese Yet is still not out of the woods yet Once you get an inflation Genie out of The bottle it's very hard to get it back In without lots of pain they haven't Learned the lessons from the Federal Reserve now the problem with this 200 Billion dollar stimulus is how it's Going to be raised according to the Japanese government they will be issuing 22.8 trillion of new debt in other words They are selling bonds to raise the Stimulus money however we know that Investors and funds they're all selling Off their Japanese Bonds in record Amounts just in September alone overseas Funds Dharma record amount of jgbs Almost 44 billion dollars worth because No investor in their right mind would Want to buy the jgbs it just doesn't Make sense Japan's Benchmark rate is at Negative 0.1 percent we are talking About negative interest rates and it is Making Dr bonds look terrible we we can See the use on a jgb is horribly low the Two years at a negative yield which Means you lose money buying them and the 10 years under 25 basis points and if

You contrast that with treasury yields It is night and day that three months is At four percent and the 10 years at 4.1 Percent so it doesn't make sense for Investors to buy Japanese bonds when U.S Treasuries are yielding much more and This brings us to the issue of Japan's Debt issuance there's a good chance the Majority of it is going to be absorbed By the bank of Japan this is an addition To the current Bond buying spree they Are doing to keep rates low and this Means the boj is going to print up Trillions of yen to buy up the stack of Government bonds and expand the money Supply this will likely cause a bigger Inflation problem down the road Investors are not going to touch Japanese bonds because it is not a good Bet and near zero rates there's only one Way out for Bond use which is to go up That will crush Bond values down the Road so it's understandable why Investors they are running away from it Because if they buy now it is virtually A guaranteed loss and the markets they Have woken up we have the 10-year jgb's Untreated for record third straight Month and this will continue as Traders Are putting it Japan's 10-year bonds Have got that expensive because yields On other nodes have risen no one is Interested in trading such bonds and This higher inflation is going to eat

Away at a Japanese Yen we know Japan has Been draining Dr dollar reserves Spending a record 42 billion in October To rescue the Yen but it is not really Working the yen is still down 21 versus The dollar and it's very likely this Move down isn't over quite yet because We need to understand the motivations of Investors and how they are going to Perceive these stimulus spending because What we have now is both monetary policy And fiscal policy moving towards easy we Have the boj spending money to keep Japanese bond yields low and now we have The Japanese government spending tons of Money to fight inflation so in other Words we have double money printing Going on it is an investors Nightmare And they're going to continue dumping The yet and moving into Dollars the Perceived Safe Haven that is why we are Already seeing an exodus of money Leaving the jgbs with over 560 billion Yen flowing into U.S treasuries from Japanese funds themselves and this is Where we need to talk about the Yen Carry trade because the biggest winners Are the currency speculators traders who Are betting against the Yen and going Long on the dollar they are winning big Time so the Yen carry trade is a Strategy where investors borrow Yen at Low interest rates and then purchase US Dollars to invest in treasuries that pay

A higher yield for example you borrow Yen at a quarter percent you sell sell Those Yen for dollars and buy treasuries That yield four percent so now you have Locked in the 3.75 gain on the interest Rate for low risk profit and that means If you're betting on the Yen carry trade You want Japanese rates extremely low And U.S rates in the sky for the widest Interest rate differential possible plus You also want both currencies to remain Stable so there's no currency risk but Guess what the trade works even better Today it has been incredibly profitable Because of a perfect storm in the Currency and bond markets the Yen has Been crashing while the dollar has been Appreciating and that means the Yen you Borrowed a few months or a year back ago Is now much cheaper to pay back not only Have you locked in your interest rate Gains but now you also have additional Gains on the currency side and because Japan is committed to keeping rates low To stimulate di economy and with the Federal Reserve still hiking these Interest rate differential is going to Continue widening we can see since the Start of 2022 the Gap is widening fast It is already over three percent today And you only get wider so this Yen carry Trade is going to keep Japan in a Perpetual currency crisis because now it Is even more lucrative to borrow

Japanese Yen and sell them on the open Market for US dollars to buy treasuries This is going to add more strength to The dollar and continue weakness for the Yen it's a self-fulfilling prophecy and It all stems from the fact that Japan Once again refuses to raise rates about The Federal Reserve is actually playing It right by hiking to protect the dollar And that's why we are going to continue Seeing more interventions by the boj to Keep the Yen on life support they are Going to sell more dollars and drain Their reserves even further and According to JP Morgan they are Predicting that Japan Central Bank will Will do another large-scale intervention If the dollar accelerates the new high Beyond 152 Yen and they also believe That Japan can't keep this up forever Remember a plaza Accord to save the Yen Isn't very likely the US is rejecting The idea and they're going to keep Allowing the dollar to appreciate Because it allows their Imports to be Cheaper Japan is truly alone in this Currency fight and here's the big Question how long can the boj defy Gravity how long can they keep this Currency battle going because sooner or Later one of two things is going to Happen the first is draining away their Entire dollar reserves which is Disastrous this will make them Ultra

Vulnerable to supply shocks if another Conflict breaks out or maybe OPEC Decides to cut production more Japan Won't have enough dollars to import Commodities especially food and fuel Into the country now the other option is Just as bad for the Japanese economy Which is to raise interest rates even Kuroda is about to crack hinting that he Might have no choice but to raise rates Down the road if inflation picks up Which it likely will and when rates go Up we could see a bond market improsion Like in the UK remember Japan is used to Operating in a zero interest rate Environment for at least six to seven Years the government could borrow money At low rates and we have no idea how Much Leverage is in a system tied to Japanese bonds God knows how much money The Bond vigilantes are also betting Against the jgbs right now so there Could be pressure building under the Surface of Japan's bond market and it Could be magnitudes worse than the UK Situation so Japan is called I believe They will raise rate sooner or later Because if they don't the yen is going To keep plummeting to hell and demand Destruction is still going to happen Because now the currency can only import Less stuff and this is is the real Concerning part if we look at Japan's Stock market that Nikkei has only

Dropped by five percent compared to the S p which is down 20 percent but that is Not true strength it has been Artificially propped up by low rates From the bank of Japan even the U.S Market is showing more genuine strength Than Japan because rates are already Going up and demand destruction is Already happening in America now just Imagine once rate starts to rise in Japan how much more will the Japanese Stock market continue to crash because If rates take down the Japanese economy We will likely see another lost decade In their stock market investors will run Away from the Nikkei like the plague now If we zoom out we can see over the last 40 years Japan's stock market has only Increased by 15 percent while the s p is Up 2 600 percent Japan has experienced 40 Years of stagnant growth at least in Their stock market and this is the Problem of trying to solve structural Problems such as an aging population Through monetary policy you can't print Your way out of every problem if vessels Are right to be very worried because Japan is the land of Central Bank Intervention I don't think we have seen Such yield curve control to such a Degree before except from the Federal Reserve even the equity markets in Japan Are propped up by the boj they are the Biggest shareholder of Japanese stocks

Holding over 400 billion dollars worth Because no one wants them even the Federal Reserve doesn't dare to mess Around and buy up U.S equities because They know there is a line too far so Japan isn't in the best shape and we Need to watch the boj because sooner or Later I believe you have to hike rates And that could take down the Japanese Economy so let me know what you think Will Japan pivot and raise rates or will They drain their reserves to the last Dollar let me know in the comments below Stay safe be sure to smash the like Button and subscribe subscribe as we Navigate through this inflationary times