Japan COLLAPSES! Yen Crashes as China Seizes Global Power! | Prof. Jeffrey Sachs

Japan COLLAPSES! Yen Crashes as China Seizes Global Power! | Prof. Jeffrey Sachs

Japan is now facing the most dangerous economic moment in its modern history. A collapsing yen and a crushing debt burden that can no longer be ignored. At the very same time, China’s global economic influence is accelerating, reshaping the balance of power far faster than Washington or Tokyo expected. In this video, I’ll explain what these shifts truly mean for the future of the global economy and why the consequences will impact every one of us. For most of the post-war era, Japan was viewed as a model of stability. It had a disciplined society, worldclass firm, and a central bank that managed deflationary pressures with a kind of technocratic confidence that drew admiration across the developed world. Yet, stability can be deceptive. It often masks structural weaknesses that remain invisible until the surrounding strategic environment changes. That is precisely what happened to Japan. The country did not suddenly fall into crisis. It sleepwalked into it over decades. And only now is the full cost becoming visible as the yen enters one of its most severe periods of decline in modern history. When I look at Japan’s trajectory, I see a nation that locked itself into policies that could only function under unusually favorable external conditions, ultra- low interest rates, near zero inflation, and a global supply chain structure that allowed Japan to import energy cheaply, and maintain vast export surpluses created the illusion of an exceptional equilibrium. The problem is that this equilibrium was an outlier in international politics. No major power can indefinitely run massive public debts, suppress interest rates, and rely heavily on imported energy without eventually confronting the geopolitical costs of such dependence. For years, Japan appeared to defy this logic. Today, the logic is asserting itself with force. The currency crisis is a symptom, not the disease. The deeper cause lies in Japan’s extraordinary debt levels, which now exceed twice its GDP. This figure is not just historically unprecedented for a developed economy. It fundamentally limits Japan’s strategic options. When a state accumulates debt on that scale, it becomes hostage to market expectations. If investors sense that the government is out of room to maneuver, they will demand higher yields. And once that cycle begins, it is extraordinarily difficult to reverse. Japan’s leadership chose to fight this dynamic with an endless stream of stimulus packages and yield curve control, hoping to buy time. But time is not a strategy, and markets eventually price in reality, not hope. The global environment shifted sharply after 2020. Energy prices became volatile. Supply chains fragmented. The United States raised interest rates at a historic pace and Washington’s economic confrontation with Beijing introduced a new layer of strategic uncertainty. These shocks hit Japan at its most vulnerable points because the country imports nearly all of its energy. A weakening yen immediately translated into higher production costs because its industries depend heavily on imported components. Depreciation amplified inflation in sectors that had long relied on predictable pricing. And because the Bank of Japan could not raise rates without risking a sovereign debt crisis, it was forced to watch the currency slide while maintaining policies that markets increasingly viewed as unsustainable. This this is the tragedy of Japan’s position. Uh it faces two bad choices and neither offers a path back to true stability. If it tightens policy to defend the yen, it risks triggering a cascade of defaults across a heavily indebted economy. If it continues to ease, the yen will weaken further, eroding purchasing power and undermining the very industrial base the country depends on. A great power can sometimes overcome such dilemmas through military strength or geopolitical leverage. But Japan, constrained by its pacifist constitution and dependent on the United States for security, has little room to act independently. It is caught in a strategic trap of its own making. The deeper irony is that Japan’s crisis is unfolding precisely as China gains financial influence, issuing bonds that global markets now absorb with startling enthusiasm. In international politics, power is relative. Japan’s internal weaknesses are magnified by China’s growing external reach, creating a widening gap that Tokyo can no longer ignore. When I examine Japan’s recent posture toward China, what stands out most is not assertiveness, but miscalculation. States often take risks when they believe their relative power is rising or when external conditions provide an advantageous window of opportunity. Japan is doing the opposite. It chose to challenge China on the Taiwan question at a moment when its economy is weakening, its currency is collapsing, and its strategic position is more dependent on the United States than at any point since the early cold war. This is the hallmark of a state acting under illusion, not calculation. For decades, Japanese leaders managed relations with China through a delicate balance of quiet deterrence and economic pragmatism. They understood that China, as a massive neighbor and crucial trading partner, had real leverage over Japan’s industrial base. But they also knew that Japan’s technological and military proximity gave it leverage of its own. The balance was imperfect yet stable. What changed was not some dramatic shift in Beijing’s behavior, but Tokyo’s increasingly vocal alignment with Washington’s containment strategy. Statements on Taiwan, especially those hinting that Japan would not remain on the sidelines in a conflict, represented a departure from previous ambiguity. and ambiguity. I know politics is often a state’s best friend by placing symbolic solidarity above strategic prudence. Japan invited a response from Beijing and Beijing rarely let such signals go unanswered. It does not need to impose dramatic sanctions. A modest but persistent reduction in tourism. Selective restrictions on imports or tightening of rare earth exports can inflict real damage on Japan’s heavily integrated manufacturing sector. China has used these tools before and each time it demonstrated an ability to apply economic pressure with precision that does not provoke outright conflict. Japan’s leaders knew this yet they acted as if the underlying balance of power had fundamentally changed in their favor. It has not. The timing of this shift could not be worse. Japan’s dependence on China is structural and immediate. Nearly 1if of its total trade involves Chinese markets or supply chains. And for key industries such as automobiles, semiconductors and advanced electronics, China is the indispensable link. The United States cannot easily replace this role. Nor can Southeast Asia supply chains can diversify with diversification and require time, capital, and political stability. precisely the conditions Japan lacks as the yen continues to weaken and domestic inflation mounts. Meanwhile, China’s exposure to Japan is comparatively small if Beijing cuts Japanese imports or reduces outbound tourism. The effects are noticeable but manageable. China’s domestic industrial capacity has expanded to the point where many goods once imported from Japan can be produced at home or substituted from other sources. That asymmetry gives Beijing freedom of action and denies Tokyo the ability to retaliate without harming itself. A dynamic any realist strategist would immediately recognize. Japan appears to have assumed that its diplomatic alignment with Washington would compensate for its economic vulnerabilities, but this belief is flawed. The United States is willing to offer rhetorical support, intelligence, coordination, and military presence. Yet, it cannot insulate Japan from economic pressure. Washington cannot supply the rare earth refining capacity Japan lack. It cannot replace China as a lowcost production hub, and it cannot prevent markets from punishing a fiscal system already strained by unprecedented debt. In short, Tokyo challenged Beijing at the precise moment when its bargaining position was weakest. This is not the behavior of a state acting from strength. It is the behavior of a state misreading the balance of power, overestimating the support it will receive, and underestimating the costs of provoking a stronger neighbor. When we talk about China’s potential retaliation against Japan, it is easy for observers to imagine dramatic embargos or high-profile sanctions. But great powers rarely need to act so bluntly. They achieve more by applying pressure selectively in ways that exploit an opponent’s structural weaknesses while avoiding unnecessary escalation. China understands this logic better than most states because it has spent the past two decades quietly building leverage across critical nodes of the global economy. Japan’s vulnerability lies not in one sector but in a web of interdependencies that Beijing can tighten or loosen at will. The first and most powerful lever is rare earths. Japan’s modern industrial base from automobiles to advanced electronics and high efficiency magnets relies heavily on Chinese refiners. Mining rare earth ores is straightforward. Refining them is not. The west never invested in the complex chemical processes needed to dominate this stage of the supply chain. China did. Today, it holds a near monopoly on processing capacity. And this gives Beijing a tool that can be calibrated with extraordinary precision. It does not have to cut off Japan entirely. A modest reduction in refined exports or a shift towards selling less processed oxides instead of high value inputs is enough to inject chaos into Japanese manufacturers procurement cycles. Even a temporary shortage can stall production lines and deepen investor anxiety, especially when the yen is already under intense pressure. Tourism is another lever, softer, but still effective. Before the pandemic, millions of Chinese tourists travel to Japan annually, creating a steady flow of revenue for retail, hospitality, and regional economies. When Beijing restricts tourism, as it has done before, for political reasons, the effect is immediate. Japan cannot replace these visitors overnight, and the signal such measures send is unmistakable economic stability depends on maintaining a workable relationship with China. Tokyo knows this, yet it continues to act as if symbolic political statements carry no economic cost. The trade relationship itself provides further points of pressure. Approximately 1if of Japan’s total trade is tied to China and the composition of that trade is uniquely problematic for Tokyo. Many of the goods Japan imports are essential industrial inputs that have no cheap substitute. Chinese components support everything from factory robotics to semiconductor manufacturing. When Beijing slows inspection times at ports, increases regulatory scrutiny, or quietly shifts procurement contracts to domestic suppliers, it sends ripples through Japanese supply chains. These actions rarely make headlines, but they exert meaningful pressure over time and can be scaled up if relations deteriorate. Export restrictions are equally potent. Japanese firms rely on access to Chinese consumers for automobiles, machinery, and electronics. If Beijing encourages domestic competitors or applies discretionary enforcement of antitrust or safety rules, Japanese companies can lose market share that they will never regain. The balance of dependence is asymmetric. China can absorb losses. Japan cannot. What makes these levers so powerful is not their individual effect, but their cumulative nature. China does not need a single decisive blow. A combination of slightly reduced raris shipments, dampened tourism inflows, prolonged customs delays, and increased regulatory friction can create a grinding pressure that interacts with Japan’s depreciating currency. Rising borrowing costs and structural energy dependence. The yen would weaken further. Imports would become more expensive, inflation would accelerate, and the political leadership in Tokyo would face a crisis with no clear solution. This is what miscalculation looks like in geopolitic. Japan has placed itself in a position where it cannot retaliate without harming its own economy, while China can escalate or deescalate pressure with minimal risk. In such a setting, leverage becomes asymmetric power and asymmetric power becomes strategic dominance. When an advanced economy accumulates debt at the scale Japan has reached, the problem no longer belongs to the realm of finance. It becomes a structural constraint on national strategy. Japan now carries a debt burden exceeding twice the size of its entire economy. That figure is astonishing not simply because of its magnitude but because of what it reveals about the strategic corner into which Tokyo has maneuvered itself. The country is no longer making choices in any meaningful sense. It is reacting to forces it can neither reverse nor control. The fiscal trap Japan faces today is the culmination of decades of relying on stimulus as a substitute for growth rather than address stagnation through structural reform. Tokyo turned to massive public spending and endless central bank intervention. In the short term, these measures created the appearance of stability. Over the long term, they produce a system that survives only by issuing ever more debt, while the Bank of Japan suppresses interest rates artificially. This dynamic functions until markets begin to doubt the state’s capacity to manage its liabilities. Once that confidence erodess, the trap snaps shut. The moment of reckoning has begun to arrive. Japan cannot meaningfully raise interest rates without triggering widespread defaults. Households are heavily indebted. Corporations rely on cheap credit for survival. and the government itself cannot sustain higher borrowing costs. Yet, if the Bank of Japan refuses to raise rates, the yen falls, imports become more expensive, and inflation accelerates. Japan therefore faces what economists sometimes call an impossible trinity. But the problem here is not theoretical. Uh it is painfully real. Defend the currency and risk collapse or protect domestic borrowers and allow the currency to disintegrate. The weakness of the yen is especially damaging because Japan imports nearly all of its energy. Every time the yen loses value, the price of liqufied natural gas, oil, and coal rises in domestic currency. Term these are not optional inputs. They are the lifeblood of Japan’s industrial base. Depreciating currency therefore acts as a tax on production, raising costs for manufacturers and consumers alike. In a country already struggling with low wages and slow growth, inflation driven by import prices is politically and economically toxic. To complicate matters further, Japan’s reliance on fiscal stimulus to manage economic shocks has escalated under pressure from global events. The pandemic, supply chain instability, US tariffs, and now heightened geopolitical tension with China. Each of these crises prompted new rounds of stimulus spending. Each round increase the debt and each increase deepen the dependence on ultra low interest rates. It is a vicious cycle. Stimulus weakens the yen. A weaken fuels inflation. Inflation undermines confidence and rising doubts force the government to issue even more debt to stabilize the system. Markets have begun to price this reality. investors understand that Japan’s fiscal path is unsustainable and they demand higher yields as compensation. The irony of course is that higher yields are precisely what Japan cannot afford. The state must therefore intervene repeatedly purchasing its own bonds and suppressing interest rates. But every intervention weakens the credibility of the currency further because it signals that the Bank of Japan will sacrifice exchange rate stability to keep the fiscal machinery alive in a world where China’s financial system is gaining traction issuing bonds that foreign investors eagerly absorb. Japan’s vulnerability stand in sharper relief power in international politics is not only about military strength. It is also about financial credibility and the capacity to absorb shocks. Japen lacks both its debt has become destiny and destiny now points in a troubling direction. A future where inflation erodess purchasing power, the currency weakens steadily and Tokyo’s strategic autonomy diminishes year after year. For decades, the global financial system rested on an unwritten assumption. The G7 led by the United States would remain the central pillar of global liquidity. Capital flowed through New York and London. Reserve holdings gravitated toward dollars and euros. And when crisis erupted, the west had the institutional and financial depth to stabilize markets. What we are witnessing now is not the collapse of that system, but it’s slow erosion. China is not replacing the G7, but it is beginning to carve out a parallel channel of liquidity that undermines the West’s ability to dictate outcomes to a realist. This is a predictable result of shifting power. Economic systems ultimately reflect the distribution of capabilities. When power changes, systems change with it. The uh recent appetite for Chinese issued dollar and euro bonds is a case in investors around the world including central banks and sovereign wealth funds have absorbed these issuances with remarkable enthusiasm. This is not because China has suddenly become safer than the United States or Europe. It is because the global environment has become more uncertain and states are now actively diversifying their exposure. The West’s use of financial sanctions against Russia accelerated this trend dramatically. Many governments concluded that holding reserves exclusively in Western jurisdictions created unacceptable political risk. China sensing this shift positioned itself as a convenient alternative. A major power able to supply liquidity without attaching geopolitical strings. What makes this moment so consequential is that China is succeeding where few expected it to. It is issuing bonds in Western currencies at rates close to benchmark levels. Investors are accepting these terms because they know China’s trade surpluses provide a reliable foundation for repayment. In effect, Beijing has discovered a way to tap Western liquidity on favorable terms while simultaneously reducing its reliance on Western financial infrastructure. This is a significant departure from the old order where Western banks and Western regulators monopolize global credit channels. The effects on the G7 are subtle but profound. When investors allocate a portion of their reserve assets to Chinese dollar or euro bonds issued offshore, they dilute the influence of Western governments. Sanctions become harder to enforce because liquidity is no longer confined to Western controlled institutions. Central banks gain an alternative provider of safe assets and emerging economies long vulnerable to US rate cycles gain a potential buffer against volatility. The G7 still dominates global finance, but it now faces competition from a state that combines scale and geopolitical ambition. The irony is that the West helped create this outcome. The weaponization of the dollar system, once seen as a strategic strength, encouraged other countries to reduce their exposure to it. Sanctions that were meant to isolate adversaries also signal to neutral states that their reserves could be frozen if they fell out of alignment with Washington. China merely provided an escape valve. It did not need to persuade states to diversify. The West did that work for it. Japan feels this shift more acutely than most G7 members as the yen weakens and its bond market requires constant support from the central bank. Japan’s credibility as a safe financial anchor diminishes market sense fragility. Investors quietly hedge their exposure. And in this environment, the rise of Chinese liquidity instruments becomes an even greater challenge because they highlight the relative decline of a system Japan depends on for economic and strategic survival. The emergence of a parallel liquidity structure does not mean the G7 is finished. But it does mean the world is moving toward a more fragmented multi-olar financial order, one in which Western dominance is neither automatic nor assured. China has not overturned the system, but it has begun rewriting parts of it, and Japan, caught in the middle, lacks the leverage to shape the outcome. One of the enduring lessons of great power politics is that systems built to constrain an adversary can over time end up empowering that very adversary. The financial order dominated by the G7 was designed to do precisely the opposite. It was meant to bind the world into a dollar centric architecture that magnified western influence, discipline rivals, and ensured that liquidity, the lifeblood of global markets, flowed through western institutions. Yet today, China is beginning to turn that system against its creators, not by confronting it directly, but by exploiting its structural vulnerabilities and repurposing its mechanisms for its own rise. This is what I call the great flip. When the logic of power embedded in one system becomes the engine of another. To understand how this is happening, we need to recognize that China did not attempt to build an entirely separate financial universe. Instead, it inserted itself into the existing one through strategic integration by issuing bonds and dollars and euros. Beijing tapped into Western demand while avoiding Western control. Investors eager for diversification bought Chinese debt through Hong Kong, not Beijing, allowing China to participate in Western liquidity without exposing itself to Western jurisdiction. This arrangement effectively transforms G7 financial demand into fuel for China’s geopolitical ascent. The West provides the capital, China provides the stability, and the global south sees a new center of gravity emerging outside Washington’s orbit. The brilliance of this strategy lies in its subtlety. China did not challenge the dollar system hidden. It learned to operate within it, accumulate influence through it, and gradually reshape expectations about where safe assets can originate by demonstrating that it can borrow in Western currencies at competitive rates. China reduces the West leverage over global credit markets. Sanctions become less potent when states have alternatives. The definition of safe asset expands beyond US treasuries and German bonds and investors, especially sovereign funds wary of political risk, begin to hedge by holding Chinese instruments. This process has an amplifying effect. As more capital flows into Chinese dollar and euro bonds, Beijing becomes even more capable of weathering external shocks. Its reserves remain robust, its currency stabilized, and its domestic financial system strengthened. Meanwhile, Western governments facing high debt, rising interest rates, and politically constrained fiscal environments struggle to maintain the credibility that once made their bonds unchallenged global anchors uh power in finance as in war is always relative. China’s ascent is magnified by the West problems. And nowhere is this more visible than in Japan, whose weakening currency and debt dependent fiscal system stand in stark contrast to China’s growing financial confidence. Another dimension of the great flip is unfolding in the offshore remy market. Corporations and governments that once borrowed exclusively in dollars are now issuing RMBBB bonds in Hong Kong, a development unthinkable a decade ago. The sums remain far smaller than those in the dollar system. But the trend is unmistakable. China is building the scaffolding of an alternative liquidity ecosystem, one that does not replace the G7, but sits beside it, diffusing Western control and giving Beijing leverage in any future confrontation. The irony is that this shift is not driven by ideology, but by the cold logic of risk management. States seek to reduce exposure to western coercive tools. China offers a release valve. The more Washington relies on financial pressure as a weapon, the more attractive China’s parallel channels become. Thus, the G7 inadvertently accelerates the rise of the very system it seeks to contain. In geopolitical terms, this marks a profound transition. The West once controlled the world’s financial arteries. Now those arteries are branching and in the cracks of this fracturing order, China is planting seeds that will shape the balance of power for decades. As I look at Japan’s unfolding crisis, I do not see an isolated economic event or a temporary misalignment of policy. I see a window into a deeper structural transformation in the global order. Great powers rise and fall, not because of single decisions, but because the underlying architecture of international politics shifts beneath them. Japen’s currency collapse, its mounting deep, and its dangerous miscalculation toward China revealed that the world is entering a new era, one defined not by the stability of American hegemony, but by the reemergence of multipolarity. In such an environment, states that misread the balance of power pay a heavy price. Japan’s predicament offers a stark reminder of a fundamental realist principle. Geography matters and proximity to a rising power is never costfree. For decades, Tokyo navigated a world where the United States served as an offshore balance.

#Economy #GlobalPolitics #JapanCrisis #JeffreySachs

Japan is facing one of the most critical financial challenges of its modern era. The yen continues to weaken, debt pressures intensify, and China’s rapid economic rise is reshaping the global balance of power. This is not a future concern — it’s happening right now, and the global implications are enormous.

In this video, Prof. Jeffrey Sachs explains how Japan’s debt crisis, currency instability, and China’s accelerating growth are redefining the economic order. With calm, fact-based analysis, he breaks down what policymakers, investors, and global citizens must understand before the next major shift hits.

What You’ll Learn in This Video
Why Japan’s soaring debt and weak yen signal a long-term structural crisis
How China’s economic strategy is altering global power dynamics
The dangers of U.S. financial pressure and geopolitical fragmentation
What a new Asian-led economic system could mean for the world
How ordinary people will feel the effects through trade, inflation, and markets

“Global stability depends on cooperation — not economic collapse.”
“When a major economy falls, the shockwaves reach every nation.”
“China’s rise is not a threat by default — but a consequence of global transformation.”

Who Should Watch This
This video is essential for:

Students of economics & international relations
Policy makers & global affairs professionals
Investors, analysts & business leaders
Anyone who wants to understand where the world economy is heading

If you care about the future of global economics and world peace, watch until the end.
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Disclaimer :
This channel is a fan-based platform created by me. Our goal is to share discussions, opinions, and analysis on global issues inspired by the viewpoints of Professor Jeffrey D. Sachs. We are not officially affiliated with, endorsed by, or connected to Professor Jeffrey D. Sachs or any organization he represents. All videos and content published on this channel are intended solely for informational, educational, and discussion purposes and fall under fair use guidelines. Any views or interpretations expressed here are independently created and do not represent Professor Sachs or his official positions.