As the world heads into a new year, investors should look beyond economic indicators such as inflation indexes and GDP to find the real trouble ahead. Instead, they should pay close attention to foreign exchange markets, particularly the Japanese yen.
For years, Japan has been relying heavily on debt to fuel its economy. In fact, their debt is proportionally twice as high as ours. To keep interest rates low and stimulate growth, the government has suppressed inflation. However, with inflation now forcing higher borrowing costs, the era of free money has come to an end.
The Japanese yen is weakening at an alarming rate, which could set off serious economic and political shockwaves given the size of their economy. There’s a chance that we may hear talk of a chain reaction involving Japan devaluing its currency and imposing tariffs.
It’s not just Japan that’s facing currency woes. All currencies are currently unstable, which means we can expect noise about tariffs, devaluations and trade restrictions – all reminiscent of the beggar-thy-neighbor actions of the 1930s that led to WWII.
In conclusion, investors should keep a close eye on foreign exchange markets in 2023 and be prepared for potential currency fluctuations and economic instability in certain regions of the world.
