The Japanese yen had been doing quite well in relation to the other major currencies of the world. Now, the Japanese Ministry of Finance has announced a currency intervention to weaken the yen. This sent the U.S. dollar higher and sent stocks and gold down today, after doing quite well last week.
Back in September, I had discussed the intervention of the Swiss central bank and its effects on the Swiss franc. I also predicted the Japanese might follow suit. While the decision from the Japanese government is not quite the same, it is still an attempt to weaken their own currency. This shows that all of the major governments and central banks of the world are mercantilist and Keynesian to their core.
This move is just another dumb move by politicians because they fear having a strong currency. While this may help their exporting industry in the short term, it is a net loss for the citizens of the country in the long run. What is so bad about having a strong currency? It makes things more affordable for the people of that country. And that is supposed to be a bad thing?
It actually amazes me that the Japanese yen was as strong as it was. The Japanese central bank had done a decent job of resisting too much inflation until now. The government debt-to-GDP ratio in Japan is over 200%. This makes Greece look highly solvent in comparison. The suckers buying Japanese debt have enabled their Keynesian policies to go on far longer than they ever should have. At some point in the future, it would have been inevitable anyway for the Japanese central bank to start creating lots of new money out of thin air. That would be the only way out of their mess, unless they were to default outright (unlikely with their culture) or severely cut back spending (unlikely with their culture of Keynesianism).
This is just another example of why we should invest in gold and avoid all of the fiat currencies (other than a portion of the currency you actually use in day-to-day life). Gold went down a little today due to the strength of the dollar. But the dollar only strengthened in relation to the other currencies because the others are so bad. They are all going down in value. It is just that some go down faster than others. This is why gold, gold related investments, and other hard assets are still a great investment.
Long term all of this is bullish for gold. In a world where central bankers are tripping over each other in a mad rush to debase their own currencies and beggar their neighbors, gold remains the only “currency” that is impervious to the depredations of the printing press. It may be a ways off yet, but I see a global inflationary crisis looming.