Tremors in the Japanese Financial Market: The July Dollar Collapse Theory

The dollar’s collapse is near. Such rumors are flowing through the Japanese stock market.

“Recently, the topic of discussion in the markets has been colored by the World Cup, and since Japan’s defeat in the primary league was decided on the 25th, a heavy atmosphere has been hanging about. The Nikkei average depreciated 109 yen to close at 15,299 yen the previous day as well. While this unpleasant mood persists, sudden adverse shifts in the stock market can easily occur. That’s where the dollar collapse theory comes in,” says a market participant.

Presently there are no particularly disturbing trends in the exchange rates. In the first half of 2014, the exchange rate stabilized around $1 to 102 yen (a rise from the $1 to 101 yen level), but strange speculations have been spreading beneath the surface.

“We’re talking about America’s long-term interest rate. With America’s Federal Reserve Bank (FRB) advancing its exit strategy, the Dow is at a historic high. The economy has also been picking up. Despite the fact that long-term interest rates should rise, it’s remained as low as 2.5 percent for some reason. Many market officials have doubts about this. Many were shocked about information that the FRB was buying up U.S. debt from Belgium. The effect is that low interest rates have continued,” says Yasushi Kuroiwa, a Japanese stock analyst.

Due to the “currency guardian” FRB’s strange behavior in manipulating interest rates, trust in the dollar as a reserve currency has fluctuated wildly. With rising paranoia in the financial markets, the dollar collapse theory has been spreading more and more.

“Lindsey Williams, a former executive of Major Oil who is known in the financial markets, has claimed that July 1 is when the dollar collapse will happen. Furthermore he says that it will be a 30 percent drop in value,” says Yasushi Kuroiwa.

The $1 to 75 Yen Crash

On July 1 it seems there is a possibility that some measures related to tax havens may be implemented, and some multimillionaires may quickly sell off a large amount of their dollars.

“If such a thing happens, there will be an extreme weakening in the dollar-yen exchange ratio. At the worst, the yen could climb 30 percent in value, which would mean a postwar value high of $1 to 75.32 yen,” says a market participant.

This could mean a stock market collapse. The previous dollar-yen postwar high was in Oct. 2011, when the Nikkei average was around 8,800 yen. The Nikkei could plunge to that level.

The Abe administration published its growth strategy on the 24th, which has thrown the market even further into disarray. That alone has made the dollar collapse theory become more prominent.

Until July 1, it looks like the situation will remain turbulent in the Japanese stock market.