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Yen at 4 year low: What's cooking?
Fri, 24 May Pre-Open

These are the times of extreme confusion. Austerity and profligacy are both being used by desperate policymakers to bring economies out of the woods. Unfortunately, none seems to be working.

Few months back it was Japan joining the league of nations that believe unabashed monetary easing can cure their economies. And while the Japanese stock markets did show handsome gains recently, a huge correction (over 7%) within a day in Nikkei has exposed the vulnerability of this recovery.

Another outcome of this policy, popularly known as 'Abenomics' , is a fall in the yen against dollar. Japanese currency has now hit a four year low with respect to dollar. While this may boost the nation's export industries, it is unlikely to make a huge positive difference to trade balance with its exactly opposite impact on imports. For a nation, that is highly dependent on imports for something as crucial as power and energy, the falling yen poses huge risks. Not to mention the inflationary pressure it will create within the economy.

Now let us hear what ace investor Mr. Jim Rogers has to say about the huge fall of the yen. He believes that the policy in Japan to flood the markets with money is likely to lead to high asset and stock market inflation. Despite the overall gain, Mr. Rogers has a cautious outlook on Japanese equity markets that have gone up not on the back of strong fundamentals and growth prospects, but because of the markets being sloshed with liquidity.

If this reckless money printing continues, Japanese economy that is already burdened with huge public debt will be characterized by huge asset bubbles and yen devaluation. In the longer term, a weaker currency can erode investor confidence leading to panic selling. These are exactly the factors that triggered the financial crisis in Asia in 1997. If other countries in Asia follow Japan's way, we might witness the history repeating itself.

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