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A Weaker Yen Plus a Stronger Dollar Equals More Inflation for Longer

For some strange reason, I do not think this is what Jay Powell had in mind with “higher for longer” or whatever nonsense he’s been spouting lately.

While the US citizenry screams bloody murder about the embedded inflation created by its financial overlords, a bigger threat approaches the Asian Tigers once again and that is the disaster of a dollar too strong for those nations to repay any dollar denominated debt to offset their own bad economic decisions via trusting our corrupt financial system in the United States.

For Japan, this is not a bid deal yet and as of tonight, the “intervention” and lip service announced by the Bank of Japan is just as big a joke as I announced in my last article on the subject:

So two trips to 155, two failures. Two interventions, two failures.

In the long term, it means the BoJ has an almost unwritten policy of only offering “resistance” to a weaker Yen versus the dollar but the truth is they do not want to be married to the US Treasury market or the whims of the Mushroom Lady, just like many other nations after witnessing what has happened in the past four years.

Unfortunately for the Bank of Japan, they have little choice as this time.

When, not if, China decides to devalue the Yuan versus the dollar, if the Yen is too strong their mass array of consumer products being sold in China will become too expensive. For Japan, the ability to become a discount seller to the US, even if it means a reduction in corporate margins, is an acceptable outcome; especially since it will become a bigger boon to their products being manufactured to and for China.

For this reason, and the current economic instability in Europe, the US Dollar index is primed for a massive move in the weeks and months ahead well above the 110 level on the popular DXY.

If the US endures a major break above 115 however, while theoretically anti-inflationary, it could create a financial crisis which would mean a crash in risk assets, aka, equities and high yield bonds inside the US and Europe. In the end this would leave the US, in a perverse the world is on fire sort of way the most attractive investment with the best return in the short term but punishing inflation accelerating on consumer goods and services for American citizens.

Most of the Wall Street crowd will view this as “deflationary” and according to historical norms that would be the correct assessment.

However in this current fiscal inflationary environment, with a US Treasury Secretary hell bent on implementing Modern Monetary Theory to contain or inflate US debt levels away, a harsh if not downright severe course of action in coordination with global central banks to reset the dollar’s value could occur without warning.

The American consumer can and will be sacrificed to attain this goal.

That is why this author believes that a higher dollar will indeed lead to greater inflation in the long run. There is no feasible path for the United States to grow out of its fiscal morass, thus if we do indeed see a sudden surge in the dollar’s value against the majority of the major global currencies over the summer as the charts seem to indicate, a larger inflationary wave will probably wash ashore upon the US citizenry in 2025.

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