U.S. Dollar and Japanese Yen, Both Headed For Inflation
While New Zealand was probably the first country to pursue target Inflation back in 1990, the United States and now Japan could teach the land of the Kiwi (and probably have) a thing or two regarding inflation.
According to Peter Schiff, President of Euro Pacific Capital, it is not something to be proud of and will, in all likelihood after all is said and done, come back to bite us.
In April of 2013, Haruhiko Kuroda, president of the new Bank of Japan, astonished the world by outlining the most vigorous policy of monetary easing the planet has ever known. Mr. Kuroda announced at that time that Japan would double the Yen in circulation until the rate of inflation in Japan was 2%. Additionally, Mr. Kuroda stated the program would be increased if the desired goal was not satisfied.
It came as a surprise to few to see the Nikkei rise to levels not glimpsed since 2008. Indeed, the Japanese Index has jumped 20% from a year ago and has grown over 12% from when the plan was revealed.
Japan’s efforts to diminish the Yen have worked out well for the dollar. On April 1st, $1 bought 93 yen. Today that same dollar will get you just under 100 yen, and by by currency standards, that’s huge.
The old warning that inflation eats away at savings is as real in the United States as it is in Japan. “If the government says we’re going to get 2% inflation and you’re sitting on a bond that yields 1/4 of 1% and the price of everything is going up, why would you sit and hold on to those bonds? So there is a crisis coming,†admonishes Schiff.
The crisis in the United States and in the Land of the Setting Sun is being shielded by equity prices climbing near or faster than inflation. Mr. Schiff foresees the printing of near limitless amounts of money ending in tears for both the U.S. and Japan. While it does not play out well for either of us, Japan has been printing money from a stronger position than the U.S. and as a result will be able to better handle the consequences of inflation.
We believe that everyone deserves a properly developed strategy for financial safety.
Lynette Zang
Chief Market Analyst, ITM Trading