Brad Setser: Higher rates could make defending yen easier amid oil price pressures

Brad Setser: Higher rates could make defending yen easier amid oil price pressures
Japan faces yen defense challenges

Brad Setser writes that defending the yen would be easier if short-term rates were higher or if real rates were not negative.

He adds that, despite such challenges, recent actions by the Ministry of Finance have helped protect Japan from experiencing an even more severe oil price shock, as oil priced in yen has already become expensive.

Setser has previously examined the need for China to maintain large-scale exports to absorb rising supply, raising concerns about global trade imbalances. In an earlier analysis, he also discussed how excessive financial inflows to the U.S. and leveraged financial institutions contributed to the global financial crisis. His recent commentary continues to focus on the challenges facing major economies as they manage currency and trade pressures.

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