Japan’s seventh prime minister in six years, Shinzo Abe has made it immediately clear that he wants a weaker yen and supports money printing to infinity. The markets have obliged by devaluing the yen by 6% even before he assumed office, now perhaps they can really get going.
Inflation has been good for the Japanese stock market, raising equity prices. After all holding Japanese bonds in such circumstances is a license to lose money. The bonds of devaluing currencies are losing value too. But what if your whole economy is supported by domestically held bonds like Japan, won’t a bond exit result in a financial crash?
Money printers always seem to think they have found a magic solution. Inflate away debts and finance a deficit with new money, it sounds too good to be true, and of course it is.
The new Japanese prime minister has discovered nothing new. It’s the oldest method of destroying a financial system known to governments, the last policy option of the absolutely desperate.
This has not worked in the past and it won’t in the present. Still you can now add Japanese investors to the longer and longer list of those in search of hard asset investments beyond the reach of reckless central bankers.
Indeed, how much of a warning do you need to act when the new prime minister states his position so explicitly? The most obvious hard assets to go for in the land of the rising sun are gold and silver, the historic monetary metals.
Stock Market Play?
Equities are always more risky in inflationary times because they will suffer volatile price movements as inflation impacts erratically on profit flows. Japan’s Shinzo Abe may not think of himself as a gold bug but that is what he has become in his latest policy statements.
For only investors in precious metals have anything to cheer about in Japan as the currency goes down the drain, inflation rises and a nation of pensioners finds its standard of living decimated.
Japan’s decline from great nation status has now reached the terminal stage with its huge debts about to sink the economy with a bond crash. Printing money will only help the gold bugs, nobody ese.