The Yen was devalued last Thursday in what Ben Bernanke would call “quantitative easing”.
The Bank of Japan is monetizing the debt that its government has incurred. The two salient points are
- The Japanese central bank will increase its monetary base from 138 trillion yen now to 270 trillion yen by the end of 2014
- It will purchase Japanese government bonds of all maturities up to 40 years
This is the first time during this economic cycle that a nation outside of the Western world has attempted Keynesian economics on this scale. Japan is taking a page out of Bernanke’s playbook. The last time the Bank of Japan did something similar, there was a slight contraction in its GDP. However, world economic conditions were almost the opposite of what they are today. The world economy can handle a rather large national economy which implements such a policy, as it did back in the first 5 years of the millennia. But what happens when Japan, the EU, and the USA all do it at the same time?
I believe what we are witnessing is an attempt at inflating away national debts. If this is indeed the case, then the leading currencies in the world (USD, JPY, EUR) would be worth less. While many pundits are saying that this will be beneficial to Japan’s balance of trade, I do not see that happening when Japan’s markets are doing the same thing.
In the end, like the Euro and the Dollar, the Yen will lose a percentage of its value. The ones who will suffer and who will bear the cost are the middle class. Those who keep their money in currency will suffer more that those who convert it to durable goods and precious metals.