It appears things are getting a little out of control around the world. Between the collapse in JGB implied volatilities in recent days, today’s melt-down in JPY (+255 pips from pre-open US levels), the last few days melt-up in the Nikkei (+6.8% in 3 days), and now the quadrillion Yen Japanese government bond market is halted limit down as yields smash higher by 11bps to 70bps in 10Y – the highest yield since mid-February. For context, this is the worst day in JGBs in five years (and 5Y yields are back near 13 month highs). So much for controlling the domestic bond market while ratcheting up inflation expectations – remember what happens as Japan’s cost of debt rises! And just to add some more fun, Japan’s economy watchers see the current economic climate dropping for the first time in six months (and household expectations also fell for the first time in six months).
JGB Futures halted limit down…(from 12:39 Tokyo to 12:50) due to rapid price moves… exaggerated soon after the BoJ’s buyback efforts on JPY130bn
Yields jump their most in 5 years…
This will not end well for Japan: A mere rise in interest rates to 3% would consume Japan’s entire tax revenue just on interest on its national debt
Prime Minister Shinzo Abe is playing not with matches but with dynamite with his 2% inflation mandate widely known as “Abenomics”. So far, Abe’s policies are popular (at least from exporters), yet I caution once again “Be Careful of What You Ask, You May Get It”.
There is no reason at all to believe Japan can easily contain this mess given should inflation get out of hand. A mere rise in interest rates to 3% would consume Japan’s entire tax revenue just on interest on its national debt.
This will not end well for Japan.
Japan will be consumed by a debt crisis surpassing the U.S. subprime crash, a leading U.S.-based hedge fund manager Kyle Bass has warned, telling investors that “the beginning of the end has begun” for Japan’s finances.
US hedge fund heavyweight Kyle Bass has warned that Japan is careering towards a major debt crisis.
Mr Bass, founder of $1.8bn hedge fund Hayman Capital, said some of Japan’s measures to boost growth in the deflation-dogged economy amount to “adding a Ponzi scheme to a Ponzi scheme”.
He cited as one example the Japanese government’s use of a new form of debt known as Japanese compensation bonds, which Tokyo plans to repay through funds raised from future tax reforms.
Mr Bass, who famously made millions betting against the subprime mortgage bond market, has been shorting Japanese debt in anticipation of the country losing control of the bond market.
Speaking at the Ira Sohn investment conference in New York, the Texan financier warned that all the elements are in place for a debt crisis, and that it is now a matter of when.