Of all the major currencies, the yen is the most exposed to a nasty fall.
As global inflation rises, fed by higher food and commodity prices, and as talk of higher interest rates increases, investors are likely to turn against the Japanese currency. The reason is simple. Strong deflationary pressures will prevent Japan from tightening its monetary policy, as most other countries will eventually do.
This will ensure that yield differentials, which have long been an important driver in the yen’s performance against the dollar, work even less in the Japanese currency’s favor. The fall in the yen could come as early as Friday if, as economic forecasters suggest, new U.S. nonfarm payrolls show a strong increase, underscoring optimism over a U.S. recovery and contributing to expectations of tighter monetary policy elsewhere.
Sure, we've all heard this sort of thing before, but as the article states what might happen, the Japanese Yen did drop massively ¥1.8 to the US dollar on the mentioned Friday Jan. 7, 2011!
Here is a chart of the Japanese Yen to US Dollar ending on 1/7/11:
You can see the huge jump at the far right. That was Friday 1/7/11.
I have been advocating for almost 3 years now that it is wise to store up at least a few months of food and water (Japan is, after all, a country that has had massive earthquakes) and now, I am becoming more and more convinced that any family who does not have at least 2 months food and water stored up for any emergency is playing with fire.
The WSJ continues about commodity and the risk of a yen sell-off:
Commodity prices have been pushing steadily higher for months, with the price of crude oil now poised to rally back over $100 a barrel and with the United Nations’ food price index rising to its highest level ever.
But while these price increases lift expectations of higher interest rates elsewhere, Japan is only likely to respond with fiscal, not monetary, tightening. The fact that the yen had a fairly good ride late last year and that speculative players are now running short dollar positions against the yen, makes the Japanese currency even more vulnerable to a sharp sell-off.
I have also written extensively about this countries' debt bomb that could explode any day (even the Japanese prime minister has warned of this). See here, here and here. The prime minister's party thinks that raising taxes during deflation is a good idea. That's why these people need to be voted out.
Continual bailing out of failed banks and companies, currency interventions, public works spending, artificially low interest rates and increased government spending have gotten us in this bind we're in. Even foreign central banks, as well as Japanese investors seem to be losing interest.
More from WSJ:
However, according to a recent study by Citigroup, the relationship between the yen and risk has deteriorated in recent weeks making it less likely that a decline in risk appetite will help the Japanese currency this time around. Japanese exporters, who have often been keen to sell their dollars against any rallies against the yen, also appear to be losing interest.
If the yen lost 10% of its value overnight, it wouldn't be the first time in history that a currency was devalued while the public slept. Japan even artificially devalued its currency in the 1980's before the yen was floating. It wouldn't be the first time.
There have even been panics in this country where the grocery stores shelves were bare of basic items. I can remember in 1979 when toilet paper couldn't be bought.
Stock up on food, water and basics folks and protect your wealth.
Got gold or silver? Buying gold in Tokyo? See here.