Surge of Yen a bad signal for world economy (Is a recession looming on the horizon?)

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 Surge of Yen a bad signal for world economy (Is a recession looming on the horizon?)

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• Why did the Yen rise, and what it means? The gradual rise of Yen over past few weeks culminated in a surge. Similar earlier incidents have resulted in bad conclusions.
• Two similar incidents : In the Russian default 1998, and the Global Meltdown 2008, the Japanese Yen had outsized gains. So maybe we are headed for a rough global slowdown now.
• Why does the Yen gain during crisis? Japan runs a large current account surplus, so world markets find it a safe  haven. Also, Japanese investors put a lot of savings overseas, bringing it back home during stressful times, thereby driving yen higher. Foreign investments into US assets was huge in recent years, and so reverse flows can be high too. 
• Slowdown signals : Activity in European and Chinese factories is down, and Apple issued a cut in sales forecast, the clearest signal.
• Strengthening Yen : It went up at least 1% against all G10 peers, and was at Y107 to the US dollar.
• Central Banks and interest rates : Central banks are raising rates, and could fuel the slowdown! Real US interest rates (adjusted for inflation) are highest in 3 years now, and nominal interest rates are greater than dividend yields in US, China, Japan.
• 2018 story : Selloff in emerging markets in summers of 2018 did not lead to Yen's surge, but a surge in dollar (due to rate increases in US and trade tensions with China). Meaning? Most of Japanese overseas investment is in US, and not emerging markets.
• Unwinding QE : Vulnerable markets will be hit the hardest.
• Summary : The structural changes happening in rich world's interest rates and the sudden surge in Yen's value are dangerous signals for the world economy ahead.

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