Japan’s Crisis Is Becoming a Global Problem

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Japan has raised interest rates to their highest level in decades — but the yen is still under pressure.

That is a major problem for Japan, but it could also have much wider consequences for the United States, Europe and global financial markets.

In this video, I look at why the Bank of Japan’s latest moves have failed to deliver the currency stability policymakers were hoping for, why the yen remains weak, and why markets are once again watching the 160 level against the US dollar.

We also look at the impact of the weak yen on Japan’s import costs, inflation, energy prices and households, as well as the risks created by higher Japanese interest rates.

Most importantly, I explain why this matters globally.

Japanese investors are some of the biggest holders of overseas bonds and assets in the world. If higher yields in Japan encourage money to move back home, that could affect US Treasuries, European bond markets, global borrowing costs and stock markets.

There is also the yen carry trade — where investors borrow cheaply in Japan and invest elsewhere. If that starts to unwind quickly, it could create significant volatility across global financial markets.

So the real story is not simply that Japan’s currency is weak.

The bigger question is whether Japan can escape decades of ultra-low interest rates without creating a much larger financial shock.