Japan triggers a dollar crisis
The Japanese government’s reflation plans are driving JGB yields significantly higher, likely disrupting US Treasury financing, and bursting the equity bubble.
Both the chart above and risk analysis assessments point to far higher US bond yields after the current pause completes. Put another way, something has to scare off foreign and domestic institutions from buying US treaty debt. The Japanese government is creating such a scare.
The new Prime Minister, Sanae Takaichi, is set on cutting taxes without reducing spending. It looks like a Liz Truss rerun, which drove UK gilt yields higher creating a liability-dependent investment crisis, and requiring the Bank of England’s intervention. Truss was forced to resign, but Sanae Takaichi is forestalling her defenestration by calling a snap election.
Her bet is that the electorate will favour tax cuts. Consequently, JGB bond yields are soaring and will continue to do so, with the 10-year JGB yield currently at 2.295%.
