by James Rickards
From late February to mid-August 2016, the yen staged a historic rally against the dollar, going from 114 to 99 yen to the dollar. Since then, the yen has backed off to 104.
Now the pundits are predicting another round of yen weakness. Don’t believe it. The yen rally has far to run.
To understand where the yen is going, a little background is needed…
From late 2012 to early 2016, Japan engaged in a deliberate policy of cheapening the yen against the dollar, euro and Chinese yuan. This was an effort to stimulate exports and cause inflation in the form of higher import prices, especially oil.
This cheap yen policy was one of the “three arrows” of Abenomics (named after Prime Minister Abe), which were announced in December 2012. The intent was to give Japan a boost while it pursued more long-term structural and fiscal reforms. This was all part of a larger effort to lift Japan out of its 25-year depression of weak growth and periodic deflation along with multiple technical recessions.