Applying Occam’s Razor to the forward value of the yen

After my previous post, Brian McCarthy left the following remarks:

I believe there is a fair bit of empirical evidence that current spot rates are a better predictor of future spot rates than are current forward rates. So a naive “long carry” strategy does generate positive returns over time. The reason this “free money” isn’t arbitraged away, I would imagine, is that the strategy doesn’t have a good sharpe ratio. ie low returns relative to the volatility. In market slang it’s “picking up pennies in front of the steam roller,” involving a significant risk of ruin if done “in size.”

So the market really does “expect” the yen to be at 106 in 30 years, which is where it is today.

This is a good argument, but in the end I favor the alternative view.

Over the past 40 years, the US price level has risen from 1 to 3.975, while the Japanese price level has risen from 1 to 1.556. That means the US price level has risen by 2.555 relative to the Japanese price level.  Over the same period, the yen has appreciated from 241.37 to 106 to the dollar, a ratio of 2.227.  So the appreciation of the yen in the very long run is pretty close to the change predicted by PPP (although over shorter periods there are quite wide discrepancies.)

So here’s how I look at things.  The simplest explanation for the forward yen trading at 50 is that the public expects Japan to continuing having lower inflation than the US, just as has been the case for the past 40 years.  They expect the yen to continue appreciating, just as it has over the past 40 years.

The alternative explanation is possible, but involves more “epicycles”:

1.  Yes, the Japanese yen has been appreciating in the very long run.

2.  Yes, the Japanese inflation rate is consistently lower than in the US.

3.  Yes, the 30-year forward yen is trading at a strong premium, just as you’d expect if these trends were going to continue.

4.  But these facts are actually unrelated.  Starting right now, the Japanese inflation will suddenly rise to US levels, even though the markets don’t seem to expect that.  And starting right now the yen will stop appreciating.  And instead some other “real factor” explains why the forward yen is trading at a strong premium, some real factor that would cause 30-year Japanese real interest rates to be hundreds of basis points lower than American real interest rates.

That’s all theoretically possible, but isn’t the simplest explanation that the forward yen is at a strong premium because investors expect the spot yen to appreciate, and they expect the spot yen to appreciate for the same reason that it’s strongly appreciated over the past 40 years?

PS.  After I wrote this post (a few days ago), I discovered a similar post written earlier by Julius Probst, who has a very nice monetary economics blog.  He anticipates my basic point.  But read his post anyway, as it ends with some interesting remarks on Japanese monetary policy.




31 Responses to “Applying Occam’s Razor to the forward value of the yen”

  1. Gravatar of B Cole B Cole
    11. March 2018 at 17:24

    I think Scott Sumner is right.

    Interesting thought: suppose the Bank of Japan announced it would peg the yen to the dollar.

    This would not be perceived as currency manipulation or a shot in a trade war. The Hong Kong Monetary Authority already pegs the Hong Kong dollar to the US dollar with no complaints.

    But in fact pegging would mark a radical revision of Japan’s monetary policy and a much looser monetary policy. Which they need.

  2. Gravatar of B Cole B Cole
    11. March 2018 at 17:31

    Ha! Upon reading the Probst post I see he ponders the same topic of pegging the yen to the dollar.

    I do wonder if the theory of expectations is true. That is, the Bank of Japan would not have to buy much in the way of bonds if it announced the peg and was taken seriously.

    It may be to maintain the peg the Bank of Japan would have to continuously buy bonds, though perhaps at a modicum.

  3. Gravatar of B Cole B Cole
    11. March 2018 at 17:34


    Another method to maintain a peg would be to move to some ratio of helicopter drops to the federal budget with every episode of yen appreciation.

  4. Gravatar of BC BC
    11. March 2018 at 17:49

    In the Probst blog post, the JPY-USD exchange rate appears to have been roughly unchanged, with some sizeable short-run fluctuations, over the ~25-yr period from 1992 or 1993 to present. During the same period US inflation seems to have been about 2% higher than Japanese inflation (which was roughly zero). Has PPP just not been a good predictor of exchange rates over this period? What constitutes “long run”, if not 25 yrs.?

  5. Gravatar of Benjamin Cole Benjamin Cole
    11. March 2018 at 19:05

    Add on:

    In 2003, Ben Bernanke, former Fed Chief, raised the topic of money-financed fiscal programs in Japan. Addressing the Japan Society of Monetary Economics, he suggested, “Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt—so that the tax cut is in effect financed by money creation.”

    Taking Bernanke’s proposal, another approach for the Bank of Japan is to not to announce a yen-dollar peg, but to go with Bernanke’s money-financed tax cuts idea whenever the yen fell below an informal peg. This would be another way to avoid international tensions, and deliver a tax cut to the citizenry, thus stimulating demand. It would also avoid boosting the national debt.

    The currency exchange market would eventually come to expect the Bernanke-inspired money-financed tax cuts, and the yen would stabilize around the informal peg. In this way, Japan’s monetary policy would become hitched to Fed policy.

    OT Idea:

    The Fed has chosen to stuff commercial banks full of reserves, and then pay IOER as a way to execute monetary policy (see Sumner;s latest post in Econlog) and regulate final demand

    But another approach could be money-financing of the Social Security and Medicare system, and attendant tax cuts on employers and employers, to regulate final demand (see Bernanke’s suggestion above).

    Gee, of the two approaches above, why do you suppose the Fed chose to stuff the banks full of reserves?

  6. Gravatar of Julius Probst Julius Probst
    12. March 2018 at 04:30


    thank’s a lot for mentioning my post! Have been reading your blog for many years. I guess it rubbed off since we approached the topic from the same angle.

    @Benjamin, a few remarks on your comments.

    Good point that from the 1990s onwards the Yen did not appreciate anymore. However, from a PPP perspective the value in the early 2010s seems roughly right, which of course implies that the Yen was strongly overvalued in the 1980s and 1990s (from a PPP point of view). Why was this the case?
    I am not sure, but it might be related to the asset price boom the country experienced in the 1980s. I think the BOJ rapidly tightened monetary policy in the 1980s to curb the “bubble”, which led to strong Yen appreciation back then (look at my graph): from about 250 in 1985 to 130 in 1987. That is pretty crazy!!

    Second, concerning Central Bank credibility about the peg. Scott wrote about this as well either here or at Econlog. Compare Denmark to Switzerland. Financial markets were testing Denmark’s peg to the euro a few times I think about two years ago or so. They were forced to buy some assets to maintain the peg, but ultimately the peg was and is credible and has been for two decades. After a while speculation against the Danish Krona ended and they were not tested anymore. Also they were not forced to swell their balance sheet to the same extent as Switzerland.
    After abandoning their Euro peg back in 2015, the Swiss still had to buy many assets in order to prevent continuous Franc appreciation and their balance sheet is now approaching 100% of GDP.
    I don’t have the data at hand atm but comparing those two countries gives us a pretty decent test about credibility of a peg, don’t you think?

  7. Gravatar of Alec Fahrin Alec Fahrin
    12. March 2018 at 06:12

    Why don’t all central banks that want to manage their currency look at the forwards for their own guidance? They don’t need to look at the 50yr forward. Just the 5 or 10.
    Both show that the yen will appreciate 10-20% over the next decade.

    What does that mean for the BoJ? Maintaining Kuroda provided the market some comfort, but his BoJ is still a product of the early 2000s. Limited reflationism that will help the economy but not enable Japan to escape the constant deflation pressure.

    The plausible impending fall of the Abe government may also be playing a role.

  8. Gravatar of Brian McCarthy Brian McCarthy
    12. March 2018 at 07:41

    A bit of a chicken / egg deal here, but from another angle I still think it must be the interest rates that are determinative and the forward FX rate which “falls out” of the covered interest parity calculation.

    If the market is to start with a forward expectation of the USD/JPY rate and “back out” the Japanese long-term interest via covered interest parity, it has to use the U.S. long-term rate to do so. But then where is that rate coming from? It must be derived from U.S. monetary policy expectations.

    If you try to do the same exercise from the U.S. perspective to determine the U.S. long-term rate by using the forward FX rate and the Japanese long rate you’re now running into a circularity problem.

    Ultimately, the FX rate is a relative price, and therefor can only provide information about the U.S. – Japan interest rate spread, not the level of either.

    P.S. – I don’t believe that PPP adherence should be interpreted “inflation causing exchange rate changes,” which was implied in the Julius Probst post. PPP is simply a long-term arb condition between the internal and external values of the unit of account. Because FX trades in active spot markets while most domestic prices do not, it tends to lead, which is most clearly visible after maxi-devaluations.

  9. Gravatar of Barnaby Oakley Barnaby Oakley
    12. March 2018 at 08:07

    Another mystery.

    Inflation linked bond yields. As of today the UK sterling 30 year bond has a real yield of negative 1.45%. The US 30 year TIP a real yield of positive 1%.

    Why aren’t they yielding the same?

    Possible reasons:
    1. Divergence in government reported inflation values
    2. Desire to retain PPP in the home country and match future liabilities

  10. Gravatar of Benjamin Cole Benjamin Cole
    12. March 2018 at 08:24


    Great comments,

    I am not sure that in all situations a central bank can control markets and exchange rates through mere expectations.

    There was, of course, the day (in 1992) George Soros “broke the Bank of England.” If a currency is over- or undervalued, it seems to me the peg must crack eventually.

    Maintaining the peg must require concrete central bank actions to bring true exchange rate market value in line with the peg.

    So I suspect that reality brings us back to this: What tools does a central bank use to make the peg sound?

    One is to buy or sell bonds (in the case of Japan, buy). But, that may require a sustained, if low level effort. I have no problem with a central bank accumulating a balance sheet, so for me that is one solution.

    But for me, a much more interesting solution is using Ben Bernanke’s money-financed tax-cut approach (see comments above).

    For the life of me, why not give productive citizens a tax break—in the US, that would be tax cuts on Social Security, offset by money creation funneled into the Social Security system (which is financed by payroll taxes paid by employers and employees).

    In Japan, similar tax cuts on productive people.

    Back to the buying of bonds to fix is peg:

    The Swiss central bank bought a lot of assets trying to devalue the franc. As far as I can tell, the Swiss citizenry gained nothing from these efforts.

    Why not print money and give to Swiss citizens to spend anywhere, including in other nations? That would depress the real value of the Swiss franc, bringing it in line with a desired peg. It would create prosperity in Switzerland, although they are not exactly suffering

    Switzerland has a population of 8.3 million and a central bank with $747 billion in assets. About $90,000 per resident!

    Gadzooks! And they are still building assets!

    We have central bankers who are happy to build balance sheets to hit a peg, or un-employ people to beat inflation, or endow banks with enormous reserves upon which they pay interest for what purpose is not really explained.

    But money-financed tax cuts!


  11. Gravatar of Dikran Karagueuzian Dikran Karagueuzian
    12. March 2018 at 09:08

    I find Brian McCarthy’s point of view much more compelling. Of course it is more complex, but that’s because it explains much more. Here is an example.

    If interest rates are zero, and dividends are 2%, the 1-year stock market index futures will be priced 2% below the current level of the index.

    With Scott’s point of view, we wind up saying “investors expect the stock index to go down”, which seems nonsensical: if so, why do investors hold stocks?

    With Brian’s point of view, the futures price is explained by a no-arbitrage condition. Expectations for the spot price at a future time are derived by estimating an equity premium. This makes a lot more sense.

  12. Gravatar of Julius Probst Julius Probst
    12. March 2018 at 09:37

    @ Brian McCarthy and Dikran Karagueuzian

    I think that’s not quite right, to be honest. Real interest rate parity holds in the short-run while PPP must hold in the long-run. The price level is a macroeconomic variable, not a financial variable.
    In the very long-run, the stance of monetary policy determines the rate of inflation / NGDP growth and thus the relative price level, which then affects the long-run exchange rate. It is the inflation differential between the two countries that will determine the behavior of the exchange rate in the long-run. We can expect continuous Yen appreciation vis-a-vis the dollar in the decades to come if the inflation gap persists.
    Note that with continuous Yen appreciation the real return on Japanese government bonds (and equities) is actually higher being a US-dollar investor.
    So if the Yen appreciates by 2% vs. the dollar in the long-run, holding a zero-interest rate 10-year JGB gives you a very similar return than a 10-year Treasury.

  13. Gravatar of dtoh dtoh
    12. March 2018 at 10:22


    Reposting my comment from your previous post.

    Consider the following scenario.

    1. Both Japan and the US have 5% nominal growth.

    2. Japan has 5% real growth. The US has 0% real growth.

    3. Both Japan and the US have 5% nominal interest rates.

    The forward fx rate will be equal to the current fx rate because of interest rate parity.

    Under your theory, tighter monetary policy and lower inflation in Japan should imply a higher forward value for the yen, but clearly this will not be the case.

    Expectations for higher inflation (and/or tighter monetary) are built into the spot rate. The delta between the future rate and the spot rate is purely a function of the interest rate differential which may or may not correlate with differences in inflation or the stance of monetary policy.

  14. Gravatar of Julius Probst Julius Probst
    12. March 2018 at 10:42

    @ dtoh

    Your theory might apply in the short-run but not in the long-run. Consider the following case: One traded good (let’s say a fridge which costs 100 USD), 2% annual inflation in the US, 0% inflation in Japan, abstract from technological change, trading costs, local taxes, etc. Assume an initial Yen dollar exchange rate of 100.
    The fridge cost 100 dollars in the US and thus 10 000 Yen in Japan in the first year.
    No go forward 30 years. With 2% inflation, the price of the fridge roughly doubles in the US and it now costs 200 USD.
    We had zero inflation in Japan by assumption, so it still costs 10 000 Yen in Japan. The price of the fridge didn’t change in Yen.
    Where must the future exchange rate be in 30 years for the two goods to have the same price internationally? Well, the exchange rate must now be at 50, otherwise the traded goods have a very different price. This would be a huge violation of the law of one price.

  15. Gravatar of Brian Mccarthy Brian Mccarthy
    12. March 2018 at 11:35


    As I noted above, I think you might refine your view of PPP a bit.

    You write that “in the very long-run, the stance of monetary policy determines the rate of inflation / NGDP growth.” I would wholeheartedly agree, but would add that monetary policy also determines the domestic-currency side of the exchange rate, in the short-term as well as the long term.

    You seem to suggest that relative inflation rates ultimately determine exchange rates. I would say they are both simply images of the same thing – i.e. the stance of monetary policy.

    The domestic price level represents the domestic value of the unit of account. i.e. how much “stuff” is a Dollar worth?

    The exchange rate is a measure of the external value of the unit of account. i.e. how many Yen is a Dollar worth?

    They are both ultimately determined by monetary policy, and while I wouldn’t say the exchange rate “causes” domestic inflation per se, it does lead, because exchange rates are active, liquid “spot markets” while domestic prices are prone to various degrees of stickiness.

    This is obvious in the case of maxi-devaluations, after which PPP is re-established by above-normal inflation rates over some extended time frame.

    To use your example above, assume the USD/JPY exchange rate were pegged for the next 30 years. Can you imagine a scenario in which U.S. inflation ran 2x that of Japan from here for another 30 years? I can’t.

    That said, over the last 25 years that’s almost happened(!) – with USDJPY trading broadly sideways and the price level in Japan basically halving relative to the U.S. (based on CPI at least).

    Why? Because after USDJPY traded from 350 in 1971 to 100 in 1995, Japan then effectively DID peg – at a REALLY REALLY DUMB FX rate.

    They thereby locked in a significant relative deflation, some of which may still be flowing through to CPI to this day for all I know. (Perhaps this was a really extended process due to nominal “stickiness” in the face of a Japanese price level that has really “wanted” to go sharply lower).

    From this perspective PPP is in fact asserting itself, as the Japanese price level undergoes a long, painful grind to equilibration after the massive appreciation from 1970-1995.

    To close the circle on this, I think we could all agree that if the Japanese devalued the Yen to 200 tomorrow we’d all be expecting a meaningful increase in Japan’s inflation rate relative to the U.S. That would, of course, require a dramatic easing of monetary policy in some form.

  16. Gravatar of dtoh dtoh
    12. March 2018 at 11:42


    I had thought about that but…

    1. Clearly with interest rate parity, arbitrage would occur instantly and that could NOT happen. I think this is indisputable.

    2. I think (but am not sure) that the answer to the contradiction you raise (and with which I agree) is that while capital flows (at least between Japan and the US) are relatively free, the flow of labor, goods and services is not. If they were, it would force a convergence in real rates, and the forward rates would then simply reflect (as Scott theorizes) differences in the inflation rates/stance of monetary policy between the two countries. However, because the current account is “sticky,” I think you end up with a spot rate in a state of precarious equilibrium between current PPP equivalence and expected future PPP equivalence, and that fluctuates (over the short term) primarily in response to changing expectations of the relative returns in the two countries

    3. All that said, I think it is an inescapable conclusion that a) the future rate is purely (with some minor variation) a function of the delta in nominal rates , and b) that the forward rate may or may not be correlated with the stance of monetary policy and/or inflation expectations.

  17. Gravatar of ssumner ssumner
    12. March 2018 at 15:48

    BC, You asked:

    “What constitutes “long run”, if not 25 yrs.?”

    40 years. Seriously, keep in mind that the real exchange rate can also change over time.

    Brian, You said:

    “But then where is that rate coming from? It must be derived from U.S. monetary policy expectations.”

    Monetary policy drives inflation and NGDP growth and the exchange rate, and they all drive nominal interest rates.

    Barnaby, Yes, that’s an interesting puzzle.

    Dikran, See my previous post.

    dtoh, You said:

    “but clearly this will not be the case.”

    I agree that it would not be the case in the example you provide; my claim is that it is likely the case in the real world. I’m arguing that the simplest explanation is that the nominal interest rate spread reflects a difference in expected inflation.

  18. Gravatar of dtoh dtoh
    12. March 2018 at 17:24

    Your real world example is a single data point. The sample size for the correlation between forward fx rates and nominal interest rates is orders of magnitude larger than the sample size for the sun rising in the east. r = 1 and is instantaneous. Can’t get much simpler than that.

  19. Gravatar of dtoh dtoh
    12. March 2018 at 17:28

    And if you’re arguing that in general countries with higher inflation expectations have higher nominal interest rates that may well be true, but I don’t see how you can deduce causality from that fact.

  20. Gravatar of Dikran Karagueuzian Dikran Karagueuzian
    12. March 2018 at 18:53


    After reading the previous post and comments, I still don’t get it.

    My first guess is that in the stock market example (0% rates, 2% dividends), you would say, “expectations of future index prices are driving the difference between interest rates and dividends”.

    But that you would be unwilling to say, “investors expect the stock market to go down”.

    In the JPY/USD example you are willing to say “investors expect the dollar to depreciate against the yen”.

    Why the difference?

    What is a good test of your theory vs. Brian’s?

    Hope I’m not missing something obvious!

  21. Gravatar of Antischiff Antischiff
    12. March 2018 at 19:16

    Dr. Sumner,

    Just to make sure I follow this correctly, it is a known feature of forex markets that nominal rates take a long time to reflect changes in real rates. Is that correct?

  22. Gravatar of Antischiff Antischiff
    12. March 2018 at 19:17

    Dr. Sumner,

    In other words, if I were not familiar with that basic idea about exchange rates, I might expect the future change in exchange rates to be reflected more in the current rate.

  23. Gravatar of dtoh dtoh
    12. March 2018 at 20:09

    And I think that you could equally argue that countries with higher real growth rates have higher nominal rates.

  24. Gravatar of HL HL
    12. March 2018 at 21:57

    James Hamilton had a post on UIP and “Fama puzzle” recently, for which Japan remains a crucial test case.

    Notice how Bussiere, Chinn, Ferrara, and Heipertz single out JPY as an odd case.

  25. Gravatar of Scott Sumner Scott Sumner
    13. March 2018 at 16:54

    dtoh, You said:

    “And if you’re arguing that in general countries with higher inflation expectations have higher nominal interest rates that may well be true, but I don’t see how you can deduce causality from that fact.”

    That’s where theory comes in. I understand theories that explain how higher inflation causes higher nominal rates, but not vice versa.

    Dikran, With exchange rates there is a macro theory that allows me to posit this type of correlation. I do not know of such a theory in the case of the stock market. (Actually three macro theories, QTM, PPP, Fisher effect.)

    Antischiff, You said:

    “Just to make sure I follow this correctly, it is a known feature of forex markets that nominal rates take a long time to reflect changes in real rates. Is that correct?”

    I’m not sure, I’m skeptical of that claim.

  26. Gravatar of Scott Sumner Scott Sumner
    13. March 2018 at 17:00

    HL, Just to be clear, I would not expect this to work for countries that had similar trend rates of inflation. Of course one objection is that we don’t know the trend rate of inflation going forward, and I concede that my argument depends on my claim that the most parsimonious explanation is that the forward premium on the yen reflects lower expected inflation. That may not be the reason.

    When two areas have similar inflation (such as the US and Europe) my assumption is less plausible.

  27. Gravatar of Benjamin Cole Benjamin Cole
    13. March 2018 at 21:40

    Scott Sumner latest post on Econlog (where I am banned from commenting) is interesting.

    As Sumner reports, Janet Yellen now says maybe a 3% IT is better. Now she tells us! I said it all along (although a inflation band, say 2.5% to 3.5%, is perhaps even better). She hints NGDPLT is worthy. But “:the market” is not ready for changes.

    Jeez, there was a day (in 1992) when Milton Friedman said the Fed was too tight (in the WSJ op-ed pages!), while the CPI was north of 3%. Now the profession seems to have a full-on irrational fetish for microscopic rates of inflation. Some sort of theo-monetarism.

    Why is it central bank chiefs only talk turkey when they leave the scene?

    In 2003, Ben Bernanke, speaking in Japan, said money-financed tax cuts (the central bank prints or digitizes, money and gives it to the national government) were a good idea for Japan. That is the taboo “helicopter drops,” with a fig leaf.

    Try finding any macroeconomist today who will chide the Fed for being too tight at 3% inflation, or call for helicopter drops. A few, but rare.

    Is macroeconomics today science, or convention, or politics in drag?

  28. Gravatar of bjcave bjcave
    14. March 2018 at 09:42

    This is not entirely on topic but maybe somebody can explain this to me. I see people say that higher OIS spreads over LIBOR mean that there is a “dollar shortage,” and more generally that a “dollar shortage” will send the dollar higher. But how can there be a dollar shortage when a) banks can create dollars out of thin air and b) even if “dollar shortage” refers to bank reserves, there are still plenty of bank reserves, a large excess in fact. So I don’t get the idea of “dollar shortage,” maybe the blogger won’t mind if I post this in the comments.

  29. Gravatar of bhb bhb
    15. March 2018 at 13:30

    The FX-FWD is a combination of a spot and an interest rate differential. To take the spot element out, look at an FX swap. The foreign exchange swap is an interest rate instrument, not an FX instrument.

  30. Gravatar of Matthew Waters Matthew Waters
    15. March 2018 at 16:37

    These EMH argument tend to imply a very low cost of arbitrage. If 30-year Japan bonds really have too low of yield, then an intelligent investor can only:

    1. Refrain from buying the bonds.
    2. Short the bonds, with accompanying margin calls.

    LTCM went bankrupt partly from 9.5-year vs 10-year Treasuries. On-the-run Treasuries’ premium did not reflect any market expectations of lower interest rates from 9.5 to 10 years. It was purely for liquidity. Whether due to a short squeeze or true “flight to safety” after the Russian default, LTCM could not make margin calls.

    A more interesting question is why the premium exists. During the flight to safety of 1998, why would any true long-term investors buy on-the-run Treasuries for a higher premiums? As long as the mispricing does not justify an arbitrage trade, then ONLY the long investors set the mispricing. In practice, investors are agents for principals and the agents, personally, have a one or two year horizon. If 9.5-year vs 10-year Treasuries have a difference of 20 basis points, buying a 9.5-year would be worth 2% more 9.5 years from now. That’s just not worth enough to matter for real-world investment managers.

  31. Gravatar of Matthew Waters Matthew Waters
    15. March 2018 at 16:58

    On 10-year bonds in Japan and US, I did a bunch of research. Spot/future prices are intrinsically related to the differential in interest rates. While LTCM’s arbitrage was vulnerable to margin calls, spot and future prices can have completely locked in profits.

    Japan’s 10-year is 0.05% and US 10-year is 3%. Also, 10-year TIPS are 0.8%. If purchasing power parity holds in any way, I just have a hard time seeing this pricing as correct. The 10-year rates imply a USD/JPY of 0.012, or 30% higher than today at 0.00094.

    If PPP held, that would mean a very large deflation. Roughly, Japan’s price levels would have to go down 8%, to equal real TIPS rates of 0.8%. Japan’s price level has actually been flat since late-90’s and has had gradual increases since 2010. An 8% deflation would actually be unprecedented.

    So the market, if it’s correct, is forecasting a violation of PPP rather than very tight monetary policy per se. I consider monetary policy to be domestic inflation and NGDP. I also have doubts that PPP will get that out of whack. Like I said about Bitcoin at $19k, I wouldn’t touch 10-year Japan bonds at 0.05%. It’s tough to say how efficient markets are, but one always has the option to refrain from investing.

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