Japan delicate balance

Japanese Government Bonds (JGBs) are becoming a real headache for everyone. In the chart below, you can see the yield of the 30 year bond reaching 3.863%. The 40 year bond yield just touched 4%. But the concern is not the level, it’s the speed at which it is increasing. 6 months ago, it was 100 bps below today. Reportedly, Japanese insurers are selling these bonds unable to cope with the loses. The yen is trading too close to 160 vs the dollar, which will likely trigger an intervention, selling dollars to buy Yen. And that trigger could potentially bring the problem to U.S. shores, as it may provoke some selling of the US treasury portfolio the BoJ currently have ($1.2Tn). We could potentially see a similar chart for US long term bonds. And that will affect the budget deficit, and it wil affect other asset valuations, such as equities, real estate, and the dollar. Not surprisingly, gold has reached new highs. The real action is not in Greenland, it’s in Tokio.

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