Yahoo Finance Writes: This could signal the next leg down for stocks
Things are precarious in Japan, and that could mean trouble for US markets.
Once the hottest trade on Earth, the Nikkei is off by 7% this year, compared to the 3% decline in the S&P 500. The culprit is a rising yen, as investors have shunned risk and flocked to safe haven currencies.
Over the past several months, the Japanese government under the leadership of Prime Minister Shinzo Abe has been trying to weaken the yen in an effort to boost its economy. Japan’s version of quantitative easing is roughly the same size as America’s but, given that Japan’s economy is one-third the size of the US, it’s had a bigger impact.
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I don’t think Japan will have any impact on the US Financial markets. Historically speaking there has been no correlation, nor should there be one. It is simply idiotic to think otherwise.
The reason I am bringing Japan to your attention is due to pure stupidity of their economic policies. Japan has been stuck in the economic funk for over 24 years now. The Nikkei is still down a little over 60% since its top in the 1990. The Japanese (just like their American counterparts) have tried everything under the sun to get their economy going while fighting deflation. Well, everything that is easy and stupid.
What they should have done, default on bad debts while following sound macroeconomic principals, was never done. Instead, they have tried to combat deflation by lowing interest rates and debasing their currency.
I am still waiting for a good explanation from one of those Nobel Prize winning economists of how any economy can prosper through debasement of their currency. It is no different from robbing Peter to pay Paul. Yet, for most countries it is the new solution to all of their economic problems. That is until the currency overshoots and collapses, leading to economic chaos. India and Turkey are the prime examples of this over the last few months.
Yes, Nikkei is up close to 100% over the last year and a half. Yet, a distinction must be made between true market growth and speculative growth driven by insane monetary policy. The latter leads to an eventual economic collapse and pain. I will let you decide in which category Japan falls into.
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