The Japanese yen has been undervalued for some time. Interest rates had been artificially low in Japan for some time. Following the 2008 financial crisis, the percentage of ownership in US Treasuries increased significantly and has remained high since then.
Now, however, the US economy is shifting to a less foreign-friendly environment. At the same time, Japan’s economy is seeing increases in inflation. This is pushing long-term interest rate yields upward. With higher interest rates at home, Japanese investors have less incentive to buy US Treasury debt.
If Japanese investors begin unwinding their US Treasury holdings, then repatriate their funds back to Japan, the economic shifts could be dramatic to the point of a tsunami.
My shift in investments is taking into consideration what is likely to occur in the bond markets, FX markets, and equity markets.
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