While a large part of the attention of the crypto and the traditional markets remains in the United States, a recent analysis of a leading economist suggests that it is time to look to the east.
According to Robin Brooks, member of the fair of the show at the show’s show at the Fair Show in the Living Fair, according to Robin Brooks, temporary relief stock market, a potential potential recession, according to Robin Brooks, is a potential recession in the United States.
Japan debt to GDP is a problem
For years, Japan has organized the highest public debt / GDP ratio among advanced economies, oscillating constantly above 200%. However, in the post-federal era marked by massive budgetary expenses, the tolerance of investors at such high debt levels has decreased.
To complicate things, Japan inflation, as measured by the consumer price index (IPC), has increased since mid-2022, which has increased inflation rates at levels not seen since the 1980s. The trend is in accordance with sticky price pressure in the world.
High inflation has pushed higher public bond yields and has increased the cost of additional budget loans. These combined pressures have allowed the Japanese GDP debt / GDP ratio of approximately 240% under the projectors, effectively putting the government in a difficult position.
Brooks has put the best in its latest substitution article: “The main thing is that exceptionally high public debt puts Japan in a terrible connection. If Japan sticks to low interest rates, it risks a depreciation of the Yen, which could lead to an increase in inflation out of control. If it anchors Yen by allowing yield yields, this could put the risk of debt of Japan at risk.”
“This Catch-22 means that a debt crisis is much closer than people think it,” he added.
Increasing debt concerns could lead investors to alternative financial evacuation valves such as cryptocurrencies, mainly stablecoins. The Japanese startup Jpyc plans to issue the first stablecoin fixed to the yen later this year.
The Yen appreciated almost 7% to 146.50 for the US dollar this year, expectations of Fed rate reduction led to a large dollar sale.
However, Zoom Out tells a completely different story. Since 2021, the yen has depreciated 41% solid, adding to domestic inflation.
Meanwhile, the yield of Japanese bonds at 10 years increased to 1.60% from almost zero in 2020, reaching its highest level since 2008. The yield at 30 years has also reached summits of several decades. In other words, investors demand a higher bonus to lend money to the government to compensate for increasing budgetary risks.
The American recession can offer temporary relief
Japan could find some relief in a potential American recession, marked by consecutive quarterly contractions in GDP. Such a situation would see investors around the world of the money park in state bonds, which has lowered the yields. (Bond yields and prices are changing in opposite directions).
The decline resulting from Japanese yields could then buy time for Japan, according to Brooks.
“It is possible that the United States will enter a recession, which will drop American and global yields. This will buy Japan time. But – in the end – the only lasting way to get out of this wrestling 22 is that Japan reduces spending and / or increases taxes,” said Brooks.
However, the big question remains: will Japanese citizens accept higher taxes and expense reductions? Only time will tell us.
