Loading ...Is Japan about to set off the falling of dominoes? Horrific “news” hasn’t helped G&S much lo these past 32 yrs-could it be “different this time”?
More broadly, Saravelos echoes what we said in our preview of the end of MMT, writing that he worries that “the currency and Japanese financial markets are in the process of losing any sort of fundamental-based valuation anchor.”
The more global inflation picks up, the more the BoJ prints. But the more easing accelerates, the higher the need to press hard on the brake when the (inflation) cliff approaches and the more dangerous it becomes. As a result, we will soon enter a phase where dramatic and unpredictable non-linearities in Japanese financial markets would kick in, according to the DB strategist, who also notes that “if it becomes obvious to the market that the clearing level of JGB yields is above the BoJ’s 25 basis point target, what is the incentive to hold bonds any more?”
This leave us with a few exploding questions:
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Is the BoJ willing to absorb the entirety of the Japanese government bond stock?
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Where is the fair value of the yen on this scenario and what happens if the BoJ changes its mind?
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The BoJ may want to generate inflation, but how does it get there with triggering a complete systemic collapse?