Yep. The yen will pretty much collapse. That will coincide with the sudden return of a highly non-linear phenomenon known as general price inflation.
It's not like it hasn't happened before anywhere in the world. The exceptional thing is the enormous amount of trust that developed markets have in the central bank's technocratic policies. This trust was built up during 70 years of relatively high stability (and growing complexity and obfuscation of the monetary and financial system).
For now the BoJ still has room to abuse this trust and make a mockery of every form of market-based risk analysis, valuation and price discovery. But at some random point of time, the trust will just break. Even in Japan no amount of measures will stop the market's instinct for self-preservation as yen holders flee to other assets.
Japan is ahead of the rest of the developed world in this. The Japanese experiment will put pressure on currencies and interest rates in all other countries who are facing a variation of the same problem.
Most important: all this will happen in a country (or world) full of pensioners. Shikata ga nai.
> But at some random point of time, the trust will just break. Even in Japan no amount of measures will stop the market's instinct for self-preservation as yen holders flee to other assets.
"There will be a financial crisis at some point in the future" is the safest economic prediction anyone can make, any time.
Do you have any more precise claims which we can use to evaluate your model of economics?
The prediction is not "crisis". It's hyperinflation and runaway depreciation of the yen.
In terms of duration: I would say they are one regular recession away from this. For the last 5 years I've been saying "next 2 years". Today I'd say 1 year. (I have no actual money involved so this prediction is worthless. But you asked for it...)
It was the same with Greece: people had months or even years to yank their money from the bank. The trainwreck was telegraphed way in advance. It's just that nobody did it because they couldn't imagine it.
It's a similar psychological process that is keeping Japanese markets disciplined for such a long time.
By contrast, in a country like Argentina people have living memories of monetary disasters and they trigger much quicker.
>In terms of duration: I would say they are one regular recession away from this. For the last 5 years I've been saying "next 2 years". Today I'd say 1 year. (I have no actual money involved so this prediction is worthless. But you asked for it...)
So what you're saying is that you've called 3 of the past 0 recessions...
The Japanese economic stagnation is complex enough that it demands more than a lone sentence concluding that it will result in hyperinflation.
As an aside, I often find it frustrating reading HN comments related to economics, as it is not an area of strength for the community. Consider how much faith you would put in an Economist's analysis of consensus objects or networking protocols. This gets especially frustrating when technical terms with specific meanings (like duration) get misused in these discussions.
1/ I'm clearly not using duration as in bonds or portfolios.
2/ I wouldn't trust an economist's analysis of network protocols. I also don’t trust an economist when he’s talking macro.
3/ When somebody asks me, I'm happy to say that I (and many others) have been expecting depreciation and inflation for 5+ years. Being wrong for the past 5 years would still have made money because the yen has already dropped so much. But true, it’s a trickle, not a flood.
4/ Japan’s near future is not really complex. Demographics are only getting worse in the next few years; and the entire world is drowning in excess capacity. In this environment, their govt is acutely running out of its traditional funding sources.
They start borrowing from the rest of the world, but then yields will rise (further increasing their already fantastic debt servicing expense, exacerbating the problem). Or they take the easy way to (nominal) growth and pass the bill to yen holders. Which is what they've been doing since 2012.
The double digit inflation prediction will have very rapid onset once we get there.
and for the record, it doesn't have to be the next cyclical recession. Anything that makes the Japanese government abandon its last shreds of fiscal credibility may seal the deal for yen holders. How about a military build-up to confront their good friends the Chinese?
It's not like it hasn't happened before anywhere in the world. The exceptional thing is the enormous amount of trust that developed markets have in the central bank's technocratic policies. This trust was built up during 70 years of relatively high stability (and growing complexity and obfuscation of the monetary and financial system).
For now the BoJ still has room to abuse this trust and make a mockery of every form of market-based risk analysis, valuation and price discovery. But at some random point of time, the trust will just break. Even in Japan no amount of measures will stop the market's instinct for self-preservation as yen holders flee to other assets.
Japan is ahead of the rest of the developed world in this. The Japanese experiment will put pressure on currencies and interest rates in all other countries who are facing a variation of the same problem.
Most important: all this will happen in a country (or world) full of pensioners. Shikata ga nai.