We’ve seen this movie before. For years, the yen carry trade has been a critical element of the equity price support toolbox. But, all good things must come to an end. When the yen gets too cheap, Japanese inflation becomes problematic as the cost of importing food and energy soars.
Aside from exposing the ludicrousness of its monetary policy, Japan’s recently unveiled 0.0-0.1% interest rate regime speaks volumes to the pressures of trying to balance economic reality with the desire for ever higher stock prices.
Slamming the yen’s value works fine – to a point. But, as rising food and energy costs pressure the real economy, something has to give.
Enter the euro.
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