The Yen's 'Gordian Knot': Unraveling the Consequences of Japan's Currency Manipulation

In March 2011, Arthur Hayes was working as a market maker at Deutsche Bank in Hong Kong's ICC tower. He recalls hearing about a massive earthquake in Japan and witnessing the devastation on TV.

The yen plummeted, and the Nikkei index dropped by almost 20% by mid-morning. Hayes noted that the dollar-yen exchange rate rose to one of its strongest levels in post-WW2 history.

In subsequent years, Japanese Prime Minister Abe launched his economic program 'Abenomics' to weaken the yen and boost Japan's economy. This led to a significant decline in the yen's value, which had far-reaching consequences, including inflation and increased xenophobia.

Hayes believes that the current undervalued state of the yen is unsustainable and will eventually lead to its strengthening. He proposes three options for the BOJ to raise rates aggressively, for the government to change domestic institutions' investment mandates, or for the MOF to repossess US treasuries in exchange for dollars.