Part 9/16:
Decades of stagnation, with interest rates at zero and QE becoming standard. Despite these efforts, growth remained elusive, and a large share of the government's debt is effectively financed domestically, mainly held in Japanese Yen.
The Yen and carry trades:
Due to ultra-low interest rates, Japan became a funding currency—borrowed cheaply in Yen to invest in higher-yielding currencies worldwide. This FX carry trade devalues the Yen continually, creating widespread speculative pressure. The Japanese authorities intervene regularly to defend the Yen, deploying their $1 trillion foreign reserves to purchase Yen and curb devaluation.
Implication: