How long before Japanese bonds blow up like US treasuries?
Not sure how the BoJ and MoF can hold back the tsunami. US 10y is going over 5% soon and will weaken the yen past the 150 magic wall. Not like their inflation is getting better (flat around 3.2% for months).
A few months ago I said to watch out if we blow past 1% for the JP10Y and YCC goes out the window. This would be the biggest shift in monetary policy. Should this happen, it could have significant implications for financial markets. This could halt the depreciation of the yen and blow up the yen carry trade that many in the US were using to buy US assets, blow up short positions against the yen, and suck liquidity from fixed-income markets in other countries. Also, this could impact US treasuries big time if they sell US treasuries. Late last year when they sold Treasuries, TIPS and 10Y yields were pushed higher and along with a more hawkish Fed tone, we also saw equities fall. Yes, Japan can influence US stocks and bonds.
Japan is not just another country. It is a major financial player and was with China, the ones that bailed us out in 2008. This is the scary part. Congress is not going to stop spending we know that. Without Japan and China playing ball and releasing some of the pressure on the US, I cannot see how we can have lower rates.
A global hard landing is becoming the base case scenario and probably the preferred scenario.
