Japan is the best bet for calamity in 2010. Things may suddenly turn focus on their huge fiscal measures and their imbalances with respect to their public debt. Already the public debt is at a staggering 225 per cent of GDP. What could start the cascade is a big dip in the value of the yen, which may require stabilisation by raising interest rates. Any kind of rates rise will push debt service costs up the roof. The country will flip from deflation to early bouts of hyperinflation. The yen may crash to 130 yen to the dollar ... which will wreck their bonds market but actually sustain interest in Japanese exporters.
China may find that it is the only engine for growth, and shouldering global demand alone may reach its peak. Wild credit growth can mask the weakness of its export model for a while but only at the price of an asset bubble. Beijing must hit the brakes this year or store up serious trouble. What will Beijing do? Prick the asset bubble, the shares will also tumble, and its effects will be felt all across emerging markets.
The EU could be placed under attack as some nations complain bitterly for having to shoulder the weak ones. The weak ones complain that they need to revive their country's employment and wants the Euro much weaker and rates a lot lower. When rich nations spending power is under threat, the union may start to wobble. Rallies and protests may rage across Europe.
These are all IFs, but they could emerge as realities swiftly, hence its best to be on our toes.
p/s photos: Zhang Zhiyi