The YEN collapse is pointing towards an inflationary crisis in Japan rather than deflationary. Japanese consumer costs are skyrocketing, while the Bank of Japan keeps rates at ultra-low levels. Could Japan be one of the first major economies to priced out of existence?

Bank of Japan (BoJ) for their June 2022 meeting decided to keep interest rates at their ultra-low level which is at -10%.  An economy that has essentially collapsed after the late 1980's through to the 2001 meteoric rise, Japan's economy is kept alive by BoJ bond buying programs to fund everything.  With COVID-19 pandemic causing even more problems for Japan, as their public debt has blown out to 12.20 trillion US Dollars or 1.4 quadrillion yen.  More alarming is Japan's debt-to-GDP which is over 266%, making Japan one of the most indebted countries in the world and in the last twenty years it has had two recessions, one (refer to Chart 1 above) in 2001 (arrow on Yen chart) and even 2008 when the global financial crisis hit ( refer to arrow: Japanese interest rate chart, pane below).  It is essentially an economy that is stuck in cycle of confusion via its monetarily policy and of late the Japanese YEN since the 1980's has lost its appeal as a safe haven.  And this is because of inflation, to which the Japanese government/central bank claim they're in perpetual deflation, the global economy is facing the worst inflation pressures ever, due to extreme supply chain crunches, pandemics (are we in an era of virus outbreaks?), climate change, geopolitical tensions:  Middle East, China/Taiwan, spikes in oil inflation, food inflation and a new Cold War with Russia.

The YEN is now showing, not just for Japan, but globally a systemic crisis erupting throughout the economies.   Note with the chart above that Japan could claim aspects of inflation was occurring within the period of 2001 through to 2013 when the Japanese Consumer Price Index (All items) was relatively low, but as you can note from the chart above (Japan interest rate), the BoJ cutting rates in response to the 2008 Financial crisis and hasn't stopped (like all Central Banks from 2008 onward).  Refer to the horizontal purple line March 2014 when Japanese Consumer Price Index  began to climb, the rate was at 0.01% and the YEN was still able to hold within somewhat a stable range, despite in 2016 when the BoJ cut rates into negative ranges a 0.10%, which it holds as its official rate.

The problem is clear, the inflation pressures that began after 2020, with the pandemic affecting supply chains, were probably already vulnerable to inflationary shocks, as you can see the YEN began with its collapse in 2021.  While Consumer costs began to climb, further exasperated by the U.S. Dollar (at an 1.75% rate) which is now being bought over the YEN.

If inflation becomes chronic with a tardiness and reluctances of Central Banks in lifting interest rates, we may see a emerging economy such as Japan, which economically could fall into an extreme crisis, with the costs of living eroding away their renown public saving rates, while their society on a whole could be priced out of existence.