1. Japan can defend its interest rate line by printing more money but at expense of the yen
2. Japan can defend the yen by hiking rates or by selling its reserves until reserves run out
Japan has a nasty choice
I received this email reply to the above Tweet from Michael Pettis.
“Looks right. I’d add that by weakening the yen, Japan seems always to support their exporters at the expense of their consumers, which may be why domestic demand is always so weak and growth so sluggish.“
The smart thing for Japan would be to hike rates and let the Yen strengthen.
Instead, if they stay on the same path, the yen might blow up.
All of Japan’s efforts to achieve growth by inflation and exports have backfired. One might think that after 40 years they would try something else.
The single worst choice for Japan would be to blow its currency reserves in an attempt to defend both the Yen and its interest rate peg.
Author(s): Mike Shedlock
Publication Date: 22 Jun 2022
Publication Site: Mish Talk