I continue to monitor the financial Japan’s financial implosion because it is a leading indicator of the fiat system crisis approaching the European Union and the United States.
The precarious balance of national debt, bond yields (cost of debt), and inflation is supremely critical for stability in a fiat debt monetary system.
Japan’s central bank and government have not managed to find an effective balance of the economic factors explained in this article. In fact, they continue to appear helpless in breaking the self-perpetuating cycle leading to Japan’s financial implosion.
That delicate balance is not going so well these days in Japan and it won’t be long before something’s got to give.
As always, I will update the facts as Japan’s financial implosion continues to unfold and break it down into simple terms as we continue to witness the global fiat currency debt system reaching its logical conclusion.
Japan’s Current Situation
Japan’s high national debt and the pressure of rising interest rates are relentlessly increasing the risk of Japan’s financial implosion.
The falling value of the Japanese yen against the dollar is influenced by ongoing money creation through quantitative easing, intended to support the bond market. However, this approach can lead to inflation and raises concerns about the sustainability of Japan’s debt burden.
The Japanese central bank’s control of bond yields (or rather, lack of control) are not effective in attracting bond-buyers (lenders), especially with higher inflation rates.
The BOJ’s self-perpetuating cycle of buying Japanese government bonds to keep rates low is leading to further inflation and a weaker yen. Overall, the situation suggests an ever-growing negative impact on Japan’s economy and the value of the Japanese yen.
Current Economic Facts Facing Japan
- Japan has a massive national debt, over 200% of its GDP, amounting to around $9 trillion.
- Rising interest rates are putting pressure on Japan’s economy.
- The Japanese yen has fallen to its lowest level against the dollar in over 20 years due to ongoing money creation through quantitative easing.
- Interest payments on Japan’s debt currently make up a significant portion of government expenditures, and if yields increase to 4%, debt payments would exceed the entire government’s current expenditures.
- The Japanese central bank aims to control bond yields, currently targeting 100 basis points (1.00%), but this may not be effective in attracting lenders due to higher inflation.
- Inflation in Japan is viewed as a victory by the government and central bank, but it poses a problem given the high level of debt.
- The central bank is faced with the dilemma of either allowing yields to rise by stopping bond purchases or continuing to print money and buy bonds to maintain low rates.
- The Bank of Japan owns about 45% of the country’s outstanding debt, a significantly higher percentage compared to the Federal Reserve’s ownership of US national debt.
- The US has a similar national debt issue and will face increasing interest payments in the near future.
Japan’s Financial Implosion in Simple Terms
The increasing risk of Japan’s financial implosion stem from a combination of factors: its massive national debt, bond yields (interest rates on government bonds), currency strength (the value of the Japanese yen), and inflation.
These elements are interconnected and pose a serious problem for Japan’s economy. If not balanced carefully, the potential for a Japanese financial collapse will continue to increase.
- Japan has an enormous national debt, which is the amount of money it owes. It is more than twice the size of its entire economy (GDP). This means the country owes a lot of money, and it becomes challenging to manage and repay this debt.
- Bond yields play a crucial role. The government issues bonds to borrow money from investors. The yield on these bonds is the interest rate the government pays to lenders. If bond yields rise, it becomes more expensive for the government to borrow money. This puts additional strain on Japan’s finances, as it needs to make larger interest payments on its debt.
- The strength of the Japanese currency, the yen, is also important. When the yen is stronger, it means it has a higher value compared to other currencies like the U.S. dollar. A stronger yen can make Japanese exports more expensive, which can hurt the country’s economy. It can also make it harder for Japan to pay off its debt because the revenue from exports may decrease.
- Inflation is a factor. Inflation means that prices of goods and services are increasing over time. Japan has had low inflation for a long time, but recently it has been rising. While some inflation is considered healthy, too much can be problematic. If inflation rises significantly, it erodes the value of money, including the money Japan owes as debt. This can make it even harder for Japan to manage its debt burden.
The Self-Perpetuating Cycle
Thus far, Japan’s central bank and government have not managed to find an effective balance of the economic factors explained above. In fact, they continue to appear helpless in breaking the self-perpetuating cycle leading to Japan’s financial implosion.
- Rising bond yields increase the cost of borrowing, which strains the government’s finances.
- A weaker currency increases the rate of inflation and hampers economic growth making it even more challenging to repay debt.
- And if inflation gets out of control, it further weakens the country’s financial stability, requiring even more debt to maintain the appearance of financial stability.
- Wash, rinse, repeat…
To avoid a financial collapse, Japan needs to keep bond yields under control, maintain a stable currency, and hold inflation around 1-2%.
None of these are under control today.
Yet then again, this is the way things collapse as the great, global fiat currency debt system runs headlong into its logical conclusion.
