Butterfly or Godzilla? Chaos and the Falling Yen
Connecting US inflation to what happens if the Bank of Japan knocks over the carry-trade dominoes set up by Mrs. Watanabe.
Oh, it’s just Godzilla. Watch out for Mrs. Watanabe.
Photographer: Chris McGrath/Getty
If you believe chaos theory, then a butterfly flapping its wings in Tokyo can cause a tornado in Texas; there’s no need for a monstrous Godzilla to make waves. This meteorological analogy has market ramifications, as a tiny tick up in services inflation in the US is causing something akin to a financial typhoon in Japan.
OK, that may be overstating it a little, but it’s true that the Japanese yen has taken another dramatic dive following US inflation data earlier this week, which had the effect of boosting US rates and strengthening the dollar against more or less all comers. The yen is back to beyond 150 per dollar, for the third time in 15 months. Before that, it hadn’t reached that landmark in three decades: