Currency Wars Lead to Trade Wars Which Lead to Shooting Wars - Yen to Go to ¥200 to $1 US Dollar?

And so it begins. The currency wars have most definitely started. The last time this happened was in the 1930s and we know what that lead to as currency wars lead to trade wars which lead to shooting wars. 

I hear that Kyle Bass predicts the yen to drop to ¥200 to one US dollar.

And some people criticized me for predicting this event (though off by a few months) two years ago.

Start to stock up, folks. We're in for a rough ride. It's not coming, it has begun.

Getting Richer By Getting Poorer - Japan's FX-Bond-Stock Trilemma

JPY could fall a lot further because weak JPY has been the most effective tool to create equity market wealth and spur Japanese demand. Moreover, Citi's Steven Englander notes, Japanese policymakers do not have many other options. If JPY is ticket for the Nikkei to regains ground lost versus other equity markets, USDJPY would have to go into three digits. By implication JPY would have to weaken a lot more. The loss of market share in part reflects long-term structural issues but Japanese governments (like others) are more mindful of incurring the anger of domestic political constituencies by making tough structural reforms than of G20 counterparts by weakening the exchange rate. From a political perspective, the Nikkei-JPY relationship is too much a good thing for Japanese policymakers to give up - but divergences are abundant at the short- and long-end of the JGB curve - and too much of a good thing in this case is a disaster.

Read more at Zerohedge

If the G20 criticize Japan for currency manipulation, which they probably will, Japan can point out that their equity market poor performance over these last ten years  also reflects a major loss of export market share… This has occurred since 2000 and escalated since 2007. In fact, some economists would say that Korea has benefitted greatly on the Yen's strength and this is unfair to the Japanese economy. 

Please refer to: Yen's Drop to Give Boost to Earnings in Japan

South Korean manufacturers Samsung Electronics Co. and Hyundai Motor Co. snatched market share away from Japanese rivals, helped by several years of won weakness and yen strength. But some of those advantages are eroding with the weaker yen. The won has strengthened 27% against the yen since June 1. 

The Japanese representatives will also argue that there is undeniable evidence that the yen to dollar exchange rate has contributed to the weakness of the Nikkei and the overall Japanese economy. Couple this with a much more militant Shinzo Abe administration and I think it wouldn't be outside of possibility where we see Japan getting upset at the G20 and strongly protesting actions. Hell, the last time a world wide organization really put the Japanese on the spot for actions was when Japan walked out of the League of Nations on Feb. 24 1933 (Almost 80 years ago today!)

... Hey! Didn't I just read a sentence at the start of this exact blog post that said, 

"The last time this happened was in the 1930s and we know what that lead to as currency wars lead to trade wars which lead to shooting wars."

Yep. I did. 

This isn't going to turn out well....

More Japanese Government Meddling in the Economy

Need proof of my contention that shutting down nuclear power plants will seriously hurt our economic situation in Japan and cause a massive increase in costs (backdoor taxes) to the average Japanese who, ultimately, is going to be funding the financial catastrophe Japan is heading for? The Australian reports that the Japanese government - already in the most massive debt to GDP in the entire world, is about to use taxpayers money to guarantee a business venture amongst a consortium of privately owned corporations in Japan: 

Japan to spend $4.4bn on gas stake

TROUBLED Japanese utility Tokyo Electric Power (TEPCO) has radically scaled back its plan to invest in the $29 billion Wheatstone gas project in Western Australia in the wake of last year's tsunami disaster that destroyed the Fukushima nuclear plant and almost destroyed the company.

But a government-backed Japanese consortium appears poised to rescue the deal by paying $4.4 billion for a 10 per cent stake in the Chevron-operated Wheatstone gas fields development and an 8 per cent stake in the LNG project.


...

The Japanese government was last week forced to bail out TEPCO by injecting 1 trillion yen as part of a 10-year restructuring aimed at preventing one of the world's biggest utilities from sliding into bankruptcy.

TEPCO and the Japanese government will hold stakes of 8 per cent and 42 per cent respectively in a special purpose company set up to acquire the Wheatstone stake, the paper reported. Mitsubishi and Nippon Yusen will control around 40 per cent and 10 per cent respectively.

What!? TEPCO gets bailed out with taxpayer then gets to own part of the new project? 


If this was a good deal, then the government needn't get involved... But, they will use taxpayers money to protect private industry from losses. If these companies make profits, they pocket them. If they lose money, the government takes taxpayers monies and bails them out.... This is State Controlled Capitalism... Used to be called Fascism... 


And some people think that the government needs to do more about the economy, the environment and our daily lives?


Haven't they screwed things up enough as it is?

"A massive 40% devaluation of the Japanese yen is imminent and inevitable..."

Are you sitting down? I hope you're not drinking coffee right now....

From Zerohedge:

"Caixin's Andy Xie, who is now confident that a massive 40% devaluation of the Yen is imminent and inevitable (with dire consequences for regional trading partners) ... now that the Japanese economy is no longer competitive in the New Normal world (read trade surplus) of delaying what every other central banks has been doing so well.... "

(Caixin is News and Analysis on China's Markets)

I hope you have at least 3 months of food and water stored up and you hold some gold besides being ready for earthquakes and other natural disasters, you should be ready for the man-made one that is coming.

Read more: Four Years of Japanese Central Planning Failure Chart