The Yen as a reserve currency

Here is a random thought.  What if the yen could replace the dollar as a reserve currency?

Exhibit 1:  As I have repeatedly shown, Tokyo is the top city in the world, above New York and London.  Two other Japanese cities, which are always ignored - Osaka and Nagoya - are more important cities, financially speaking, than the top Chinese city, Shanghai.  Japan is the top creditor nation in the world.  (China, with Hong Kong, is #2).  The US is the top debtor nation in the world with the UK as #2.  The largest foreign owner of US government debt is China, and #2 is Japan, and Japan will soon be the biggest because China has stopped buying US debt.

Exhibit 2:  The JGB is known as the "widowmaker" and that status is likely to continue.  Even though the Japanese debt is enormous, the interest rates on bonds is lower than US bonds (Japanese 30-year: 1.92% vs. US 30-year: 2.76%).  Although the interest rates on both will inevitably rise, the Japanese have more room to rise.  Even though the Japanese invented quantitative easing, the yen continues to be a very strong currency.  Its value has increased from 100-yen to the dollar in 2009 to 80-yen to the dollar today.  (Although recently it has been weakening from 79.5 to 82.5).  As anecdotal evidence (not worth much), at least one person has the opinion that the US will go down before Japan.

Exhibit 3: The Japanese Yen will be the default reserve and trading currency for the Asian countries (Singapore, Malaysia, Thailand, Vietnam, Indonesia, Philippines, Brunei, Cambodia, Laos, and Myanmar, China, Japan, South Korea, and Taiwan).

Exhibit 4:  The Chinese yuan is nowhere ready to be a reserve currency.  This would take massive and numerous changes which China does not have the desire to do.  The Chinese economy may soon be slowing down or experiencing a bust, and the government is too insular.  Until the yuan is ready, the yen (and to a lesser extent, the Australian dollar) may act as a proxy.

Counter-argument:  Japan is crippled with the economic disaster of Fukushima.  It has an aging population, and recently its current account deficit turned negative.  However, these problems do not overshadow the previous factors.

Conclusion:  The yen may replace the USD as a reserve currency.  

See also:  Could the Australian dollar be a reserve currency?

==============

From: http://www.easyforexnews.net/wp-content/uploads/2012/05/Global-Research2.pdf
"The yen can lay claim to being the only true safe haven currency. Japan has USD 3.1tr of net overseas assets and the large government debt is almost entirely held by domestic investors. ...Although the liquidity of the dollar means that it can sometimes behave as if it were a safe haven currency, it remains vulnerable to loss in overseas confidence in its public finances. There are other countries which have large holdings of overseas assets, but they cannot be considered viable alternatives to the yen because they are either too illiquid (NOK, SGD) or too closely controlled (CHF) to offer a genuine safe haven."

=============
Update:  Kyle Bass thinks the yen will blow up in 12-18 months because Shinzo Abe will do everything in his power to create inflation.  Japan is now running $100 billion/month trade deficits. And then when inflation reaches 3% the whole thing will blow up.

It could be, but Bass has been wrong before on Japan.  A weaker yen may help the Japanese economy.  And even at $100 billion/month, Japan has so high a surplus, it will take a while to burn through it.  Something to watch though.  And so maybe it isn't such a good idea to buy yen if it will be weakened further.