The February 9th Worked Shoot was suggested it may be time for investors to refocus upon the cyclical risks introduced by developments in Europe and less so upon China. Today, I will return east….but beyond.
Japan was the OG of QE - the graph above is debt to GDP, with this one being the Bank of Japan’s balance sheet:
And now the source of the ‘Widow Maker’ - the yield on the Japanese 10-year government bond (JGB):
Why the ‘Widow Maker’? Many a speculator has lost their shirt trying to anticipate when this looming financial disaster would be unleashed. It has literally been decades of relative economic stagnation, zombie companies, and bad/deteriorating demographics.
Here is government reported inflation over the past 25 years - note the extended periods of deflation:
Next is US dollar/yen since Nixon closed the gold window in 1971:
We can see a long basing period from the 1990’s until present, but of course, the post-Global Financial Crisis period has been one of relative insanity from central bankers.
Here is yen priced in gold:
That is a rather large breakout, which is also even steeper than the breakout in gold priced in euros, which I find noteworthy given events in Europe:
With so much focus reasonably centered on the events in Ukraine, I think it wise to return to the sandpile model analogy. The Japanese have been adding trillions of grains of sand to their pile for so long that it almost seems implausible that an avalanche could occur. With the US Federal Reserve potentially just starting a tightening cycle, the Japanese may be going the other direction.
As I wrote back in the fall, the signs of a potential global ‘avalanche’ starting seemed to appear in Q1 2021. Its force has been enveloping markets and social mood with increasing intensity. A land war in Europe has broken out, along with global financial war in response. With a potential burgeoning global food crisis on the horizon, it seems plausible that such a historic avalanche could consume the OG of QE. Are the risks of Japanese hyperinflation on your Bingo card? Unfortunately, I think it should be.