Could the Crashing Yen Trigger Hyperinflation in the U.S.?

Could the Crashing Yen Trigger Hyperinflation in the U.S.?

Mike Whitney

A cratering yen has set off alarms on Wall Street and in financial centers around the world. If the Bank of Japan sells its behemoth stockpile US Treasuries (now exceeding $1.2 trillion) to support its sagging currency, the US bond market could go into a nosedive dragging the global economy off a cliff. 

That is why on Friday, July 31, US Treasury Secretary Scott Bessent launched an unprecedented currency intervention to prop up the anemic yen and to forestall an impending financial meltdown. 

Surprisingly, Bessent implemented a euros-for-yen trade via the New York Fed so as not to weaken the dollar or trigger a selloff in bonds. The gravity of the intervention, however, was not lost on jumpy investors who have connected the dots and understand that America’s $40 trillion debt Ponzi is growing increasingly unstable and could trigger another financial crisis. In short, the teetering yen is merely the canary in the coalmine signaling deeper structural issues that could take down the entire dollar-based house of cards. 

This is from Forbes:

The wobbling Japanese yen could trigger a global financial crisis…. The yen recently reached a 40-year low against the dollar. The fear is that a further fall in the currency’s value will precipitate a crisis of confidence that will not only set off a serious bout of inflation inside Japan…. but also adversely impact financial markets around the world.

That’s why the U.S. and Japan just undertook a very rare joint intervention in currency markets to prop up the yen. In other words, both countries used dollars to buy the yen.

The intervention has had success. However , most experts believe the relief will be short-lived because of adverse fundamentals in Japan: a too-low short-term interest rate, which is 1% vs. around 3.5% in the U.S.; a national debt that is proportionately twice that of the U.S.; rising energy prices; and a declining and aging population.

The immediate worry for U.S. Treasury Secretary Scott Bessent is that in an effort to save the yen from collapse, Japan will start liquidating its $1.1 trillion portfolio of Treasury bonds and bills, not to mention its holdings of German and British bonds. 

Simply put, it’s a bailout facility. The Fed is issuing dollar-backed loans to prevent the market from rebalancing and to avoid a catastrophic sell-off of US debt that could put the global financial system into downward death spiral.

But will all this meddling work?

Investors don’t think so. Look at this blurb from Reuters:

“Intervention … can be effective in slowing the pace of depreciation, reducing excessive market moves and providing short-term support, but history suggests without a change in ​the underlying fundamentals, its impact fades relatively quickly,” said Ales Koutny, head of international rates at Vanguard. Reuters

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