Japan’s deepening currency and bond-market woes should be a wake-up call for other countries that appear to be on unsustainable fiscal paths, not least the United States, as well as France, Italy, and the United Kingdom. After all, a crisis in one country often draws investors’ attention to others facing similar problems.
WASHINGTON, DC—Japan appears to be on the cusp of a full-blown currency and bond-market crisis. Although the Japanese authorities spent more than $70 billion in May to prop up the yen, the currency has slumped to a 40-year low and is estimated to be at least 15% undervalued against the US dollar. Meanwhile, Japanese long-term bond yields have surged to multi-decade highs following the end of the Bank of Japan’s yield-curve-control policy. And with no signs of Japan addressing the underlying causes of its currency’s downward spiral anytime soon, there is every reason to fear that the crisis will deepen.
WASHINGTON, DC—Japan appears to be on the cusp of a full-blown currency and bond-market crisis. Although the Japanese authorities spent more than $70 billion in May to prop up the yen, the currency has slumped to a 40-year low and is estimated to be at least 15% undervalued against the US dollar. Meanwhile, Japanese long-term bond yields have surged to multi-decade highs following the end of the Bank of Japan’s yield-curve-control policy. And with no signs of Japan addressing the underlying causes of its currency’s downward spiral anytime soon, there is every reason to fear that the crisis will deepen.