Japanese stocks, especially of major exporters, soared and
the yen tanked, starting in early February. Yet the spurring
effects of monetary easing on Japanese stocks and the depressing
influence on the yen didn’t last long. Since mid-March, the
currency has resumed its role as a haven from euro-area turmoil.
The “risk off” trade is back in favor. Still, I continue to
believe that fundamental changes are occurring in Japan that
will weaken the yen considerably in future years.
Last year, Japan’s gross government debt was 220 percent of
gross domestic product, according to the International Monetary
Fund, by far the largest ratio of any Group of Seven
country. All governments lend back and forth among official
entities so that their gross debt is bigger than the net debt
held by non-government investors, and Japan does this more than
other developed countries. Still, on a net basis, Japan’s
government-debt-to-GDP ratio is rivaled only by Italy’s and
leaped to 113 percent in 2011 from 11.5 percent in 1991.
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