Why Japan's Huge Gamble Is Doomed To Fail

July 15, 2016

With Japan about to launch a $200 billion fiscal stimulus, you’d think the yen would be getting crushed. Instead, the long-term chart makes clear that the currency is merely correcting this year’s powerful rally, presumably in preparation for another monster leg higher later this year or early next. If it should come to pass, that would be bad news for the country’s export-led economy, since a strong yen increases the global price of Japanese goods.

From a technical standpoint, the yen could correct a further 15%, down to point ‘A’ in the chart (see inset), without disturbing the chart’s very bullish look. Although the pullback likely has farther to go, the fact that it has followed a six-month binge that surpassed two prior peaks of monthly degree all but ensures that bulls are not yet finished.

Krugman and other ideologically misguided eggheads should watch these developments closely, since the outcome will be as pure a Keynesian experiment as the world has ever witnessed. Can a cosmic blowout of government spending offset a dearth of capital investment and killer currency-headwinds facing Japan’s private sector and export economy?  This question is not as hard as it seems, even if not one economist in a hundred could choke out the correct answer.

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The word ‘silver’ originates from the Old English Anglo-Saxon word 'seolfor'