The Yen is in serious trouble. This is as a direct result of the policies of the Central Bank of Japan. I’ve done a few videos on the Japanese Economy, so I won’t be going into that here.
Gold v Currencies.
A good way of assessing the state of a currency is to compare the currency to Gold. Indeed, Gold is, to my way of thinking, by far the best measure that can be used for valuing a currency.
In Economics, relativity is an important concept. Everything is relative. The value of something is regarded in relation to something else.
So, let’s look at the situation in Japan – specifically the Gold price so that we can assess the true value of the Yen.
If you look at the Gold price, measured in Yen, it high and if you look at a chart you will see that it’s been going up of late. What does this tell us?
Well, before I explain what it tells us, we must bear in mind that Gold doesn’t change. It’s constant over time.
If Gold doesn’t change, if it’s constant over time, the question that should be asked is, what has changed?
The only thing that could have changed in this simple equation is the currency.
So, a rising price of Gold, as measured in Yen, therefore tells us that the Yen is losing some of its purchasing power. Relative to Gold, the Yen has been losing value. It has undergone a devaluation.
You might see the rising price of Gold and think that Gold is getting more “expensive”. But I would encourage you to switch your thinking and consider instead that the currency has lost some of its purchasing power in relation to Gold. This means that takes more Yen to buy an ounce of Gold than it did before. In general terms, because the currency has lost some of its power, or potency more of that currency is required to purchase the product.
We must also bear in mind that Gold in Japan is no different to Gold found in Brazil, or Turkey, or anywhere in the world. This is further proof that something is amiss with Japan, with the currency of Japan.
