The unraveling

The BoJ concluded its two-day monetary policy meeting today, deciding to keep the short-term policy rate unchanged at 0.75% (as widely expected), while raising growth and inflation forecasts in a somewhat hawkish tone. Governor Kazuo Ueda held a press conference afterward, where he reiterated monitoring of markets and mentioned the possibility of conducting bond operations flexibly under extraordinary circumstances to promote stable yield formation, but he did not announce or signal any immediate new buying or adjustments to ongoing operations. As you can see in the chart below, the yen strengthened almost instantaneously, even before any intervention was actually implemented, and the long end of the curve (10-40 years) saw its yields coming down abruptly as well. The BoJ already owns 48% of all the debt, so it should not be a surprise to see more intervention, but it would appear is if the experiment of price discovery for long bonds in Japan is done. How does this end? It wil likely imply more money printing, more QE, buying long bonds and perhaps defending the Yen to avoid currency collapse. The key is, how are they (the BoJ) going to fund the Yen purchases? Will they sell US Treasuries? Or will Bessent extend a currency swap to Japan like he did with Argentina to calm markets? Gold is too close to $5000 and silver is too close to $100. Investors are preparing for the unraveling.

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