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Japan's conundrum

The situation in Japan may be reaching a tipping point. As you can see below, Japan has about 1 quadrillion Yen of outstanding goverment debt ($10Tn). The #boj has been using #QE to buy equities and bonds becoming the biggest holder of both. At the same time, they have been maintaining rates low using yield curve control (YCC) policy, but now, due to high inflation, they find themselves trapped: if they let yields float, they can potentially double, pressuring the national budget due to the cost of servicing debt, (already 25%ish of total expenses) which will eat other important outlays. However, If they don’t let yields float freely, and continue with #YCC, they will devalue the currency more, and allow inflation to run hot, which puts more pressure on yields.


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