Summary of Key Points
This news report warns that the most severe financial collapse in the world in 2026 could occur in Japan. The yen has currently become the weakest currency globally, and the Bank of Japan may be forced to raise interest rates on June 17, 2026, due to inflationary pressures caused by the depreciation of the yen. Such a rate hike could trigger the bursting of Japan's debt and asset bubbles, leading to systemic financial risks.
1. Why has the yen become the “weakest currency” in the world?
The depreciation of the yen is not sudden but the result of a combination of long-term factors and recent triggers:
- Excessive money printing and low interest rates: Over the past decade, Japan has been implementing quantitative easing measures to stimulate its economy and even experimented with negative interest rates (where people are paid to deposit money with banks). As more money was circulated and interest rates remained low, people exchanged yen for higher-yielding currencies like the US dollar and euro, leading to a surplus of yen and its subsequent depreciation.
- Stagnant economy and lack of confidence: Japan's economic growth has been slow for decades, and its exports (such as automobiles and electronics) are not as competitive as before. Domestic consumption has also failed to pick up. Investors see little future for the yen and have begun selling it, further pushing down its exchange rate.
- US interest rate hikes adding fuel to the fire: In recent years, the US has been raising interest rates, making the dollar more valuable and the yen even weaker. For example, what used to cost $1 in dollars may now cost 150 yen, representing a depreciation of nearly 40%.
2. Why is the Bank of Japan “forced” to raise interest rates?
Raising interest rates is not something the bank wants to do; it is a necessity:
- Inflation becoming unmanageable: With the depreciation of the yen, imported goods such as oil, food, and raw materials have become more expensive. This has increased costs for consumers and businesses, leading to rising inflation, which the government must address.
- Preventing further currency devaluation: Raising interest rates will make the yen more valuable, as people will be incentivized to hold it instead of other currencies. If no action is taken, the yen could depreciate significantly (e.g., to 200 yen per dollar), making imported goods unaffordable for ordinary Japanese consumers and causing an economic collapse.
However, raising interest rates is a double-edged sword: while it may stabilize the currency, it also increases the burden of debt for borrowers.
3. Why could raising interest rates lead to a “financial collapse”?
Japan's economic structure is not resilient to higher interest rates:
- Huge government debt: Japan’s government debt accounts for 260% of its GDP, the highest among developed countries. With low interest rates, it was relatively easy to service the debt. But with rising rates, the cost of borrowing will skyrocket, potentially leading to a debt crisis.
- High debt levels among businesses and households: Japanese companies are accustomed to borrowing at low interest rates for expansion, and many households have taken out loans to buy homes. Higher interest rates will increase their monthly repayments, which could lead to bankruptcies or mortgage defaults, triggering a real estate bubble burst.
- Asset bubbles in the stock market and housing sector: Low interest rates have fueled the growth of these markets, but higher rates will cause asset prices to plummet, similar to the bursting of the Japanese bubble in the 1990s, leaving many people financially devastated.
4. What impact will this have on us ordinary people?
Don’t think that a Japanese economic collapse won’t affect us; the impacts are direct:
- Travel and shopping opportunities: The depreciation of the yen makes travel to Japan and purchasing goods (such as cosmetics and electronics) more affordable.
- Impact on export businesses: Japan is an important trading partner for many countries. A Japanese economic collapse could lead to job losses and salary cuts in related industries.
- Global financial instability: As Japan is the third-largest economy in the world, its collapse could cause fluctuations in global stock markets and exchange rates. Investments in funds and stocks that hold Japanese assets could lose value, and the value of the RMB might also be affected, making imported goods more expensive.
- Lower costs for studying in Japan: Tuition and living expenses for studying in Japan would become cheaper, making it more attractive for international students.
5. Will a collapse really happen?
It’s not certain, but the risk is high: The Bank of Japan has been delaying action, balancing the need to curb inflation with the fear of triggering a crisis. If by 2026, the depreciation of the yen and inflation are out of control and the bank is forced to raise interest rates, the likelihood of a collapse increases. However, if Japan can find other solutions (such as negotiating with the US to stabilize the exchange rate or stimulating its economy), it might avoid the worst outcome. Currently, Japan’s combination of high debt and low interest rates poses a significant risk, but it’s still uncertain when the crisis will hit.
In summary, Japan’s problems are the result of long-term issues, and raising interest rates is just one possible trigger. For us ordinary people, we should take advantage of the opportunities presented by the yen’s depreciation while being cautious about potential global financial fluctuations.