mtgarenacrash| Former chief strategist at Goldman Sachs Group: Japan's debt woes could cause any foreign exchange intervention to fail

According to Robin Brooks, a former chief currency strategist at Goldman Sachs Group Inc., Japan's huge government debt-at least for now-could derail any effort to support the yen.

Japan's debt has ballooned to more than 250% of its economy, more than any other country, according to the International Monetary Fund (International Monetary Fund). 'This gives the BoJ a strong incentive to keep interest rates low to drive down government costs,'he said.

The result: unless there is a change in policy, this will offset any efforts to push the yen up. The yen is being dragged down by Japan's insistence on extremely low interest rates that the US gave up two years ago.

"it's really a debt problem," Brooks said. "too much debt puts Japan in a very difficult position, keeping interest rates low, thus shifting fiscal woes to the yen." Brooks is currently a researcher at the Brookings Institution in Washington. "even thoughMtgarenacrashYou have a lot of debt, and you can use your central bank to keep interest rates low. So Japan has been doing this, and Europe has been doing it, but it comes at a price. "

The consequence for Japan has been a sharp fall in the yen, which has fallen more than 1/4 against the dollar since the Federal Reserve (Fed) began raising interest rates in the US in March 2022. The yen rose sharply on Monday, amid speculation that it was the first time the Japanese government had intervened to prop up the yen since it rebounded from a 34-year low in 2022.

However, given the greater confrontational pressure, there are doubts about the effectiveness of these measures.

Although the Bank of Japan allows interest rates slightly above zero, the yield on 10-year JGBs is still only 0.MtgarenacrashAround .9%, while the yield on US Treasuries is 4.6%, which gives investors a strong incentive to sell yen and buy dollars, so they can't invest in the United States instead.

The Bank of Japan also continues to buy government bonds through so-called quantitative easing, a step to inject cash into the financial system, a size that the Fed has been reducing. 'The loose policy has effectively offset any impact of supporting the yuan, 'Mr. Brooks said.

He said: "the Bank of Japan should tighten policy by allowing 10-year JGBs yields to rise, and then the intervention of the Ministry of Finance will be more effective. This is exactly what we lack. "

Before joining the Brookings Institution, Brooks served as chief economist of the Institute of International Finance and chief foreign exchange strategist at Goldman Sachs. He won the race with the Brazilian real in 2022, causing a sensation in Brazil.

So far this year, the yen has performed worst against the dollar in the developed world, falling nearly 10 per cent.

"it's entirely their own fault, and they don't want to reduce their debt," he said. "interestingly, it challenges the idea of unlimited fiscal space in advanced economies."