Japan

Japanese Yen dollar exchange rate

Kling says Japan can tolerate such a deflation because its lenders are internal citizens willing to take a loss on Japanese bonds. The MadHedge Fund trader says Japan will deflate to support exports, no matter what.

With a debt/gdp ratio of 200%, the losses absorbed by Japanese bond investors are rising rapidly, and at some point Japanese bond investors will go on strike.

The yield on Japan's 10-year bond was unchanged at 1.315 percent. But the chart above shows that five year volatility in the Yen is close to 50%. The only way to tolerate that kind of volatility is to reduce import dependence for the domestic saver; but continued contraction of domestic consumption cannot go on forever. Either the aging population goes back to work, or Japan goes to default.