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Japan May Provoke New Global Financial Crisis

Photo: Japan May Provoke New Global Financial Crisis

It is common knowledge that governments sometimes proceed to extreme measures in order to back economic growth when the situation gets really tough. It may have an impact on other economies around the globe, simultaneously provoking instability in financial markets. This is exactly what may happen due to the Japanese government’s new ambitious plan.





Any means to an end?
The Japanese government seems to be trying to revive the national economy by all means. According to «Die Welt», a German edition, the results of last year’s elections in Japan disturbed financial markets around the globe.  The thing is that the Japanese conservatives declared their unconventional measures during the run-up to the elections. Those measures were aimed at restoring Japan’s position in the global economy. One of the slogans was to “to weaken the Japanese Yen and to strengthen Japan”. The market reaction was almost instantaneous. In a couple of weeks, the Japanese currency weakened by 10% against the US Dollar, thereby reaching the 2-month low - 88,41.
According to the Finance Minister of Japan, the Japanese Yen was extremely overvalued. Therefore, one of the new goals set by the Japanese government was to eliminate the deflation in order to help Japanese exporters (the Japanese economy is an export-oriented one) and to restore the previous economic growth.
The Bank of Japan keeps printing money, thereby increasing he money supply. This means the authorities are determined to increase the rate of inflation. The target is 2%. At this point, there is still deflation. Consumer prices are falling.  Therefore, excessive money supply will help to revive some economic processes in Japan.
Market Outlook
The current economic situation makes numerous governments all around the world take the same steps. Mass media keep telling us about various “currency wars”. The USA, Great Britain and China, other financial giants, are printing money as well. The EU’s financial authorities are determined to do the same. Still, little is told about the real reasons behind those actions. Well, this is not a secret. For example, let’s consider the Tokyo-Beijing confrontation aimed at stimulating export.
At the same time, emerging markets like Brazil are involved in the global war of currencies as well despite the fact that the Brazilian authorities warned about the danger of such policies n 2010.
Still, everything looks natural in the current financial environment. As some currencies devalue, others keep strengthening, and vice versa.  However, the Japanese government may start another wave of currency confrontation, which may result in major negative consequences for most economies and the entire global economy in general.  It may depreciate major financial instruments.
Some experts say that China is interested in the weakening of the Japanese Yen and the US Dollar as in this case the Renminbi may oust the “Green Buck” to become the global reserve currency.


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Text: Rostislav Belyi
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