What kills the Japanese economy? CFA pulled the curtain again on the real story

For years, Japan allowed the world to borrow from it at a cheap price. Now, this system is collapsing.

CFA Laukik Shah clearly explains: Japan has maintained interest rates at zero or near – sometimes negative – over decades, in an attempt to get itself out of a spiral of low growth, contraction and demographic decline.

The Boj Bank (BOJ) was immersed in the system with money, buying government bonds and promised to maintain low borrowing costs. The idea was to make loans cheap until companies, families and investment spent. But it also created something bigger: a global arbitration machine.

The yen was born with trade from this preparation. Investors borrowed the yen at a rate of semi-zero prices and stopped the money as the returns were higher-incendiary markets, American stocks, global real estate.

Mathematics was simple: borrowing by 0 %, earning 5 %, spreading pocket. As long as Japan has kept low rates and the yen remained weak, trade worked.

Then the reflection came.

In March 2024, as inflation crawls finally and the yen sliding too far, BOJ started raising interest rates and staying away from its superior policy. This shift to break the trade of pregnancy.

Investors rushed to relax. The yen was estimated – just as he did in 2007, when a similar trade was killed.

Japan has now been discovered between two pressures: taming inflation and protecting the yen, or keeping low rates and risk capitalism. Shah explains: The old playing book no longer works.

The same tools that were once the fragile economy of Japan together – zero rates, the purchase of huge bonds, and the weak currency – are now in reverse results.

This is not just a problem with Japan. It is a warning to a global financial system based on contracts of cheap liquidity. The leverage, Shah notes, was always costly. It is just an appearance now.