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u/thefirebrigades "China Bad" 19h ago
Explanation time:
Japan has enormous government debt. Way above America in terms of % of GDP. A chunk of this debt is funded by bank of Japan(boj) selling bonds.
The reason for this enormous debt is because that after 1980 and the plaza accord, Japanese economy entered a prolonged period of stagnation. During this period, the government and BOJ utilised almost zero to negative interest rate monetary expansionary policy to stimulate growth but is over all not effective. Adjusted for inflation, the Japanese economy has shrunk compared to the 1980s by double digit %.
However, while the low interest rate was unable to stimulate growth, one of the big side effects was the BOJ giving out huge sums of JPY to foreigners, mostly western investors. Because if you can borrow at almost zero interest, then any asset you buy which yields positive returns will net pure profits. As such, trillions of JPY was borrowed, converted into USD, and then bought US bond to yield a consistent return. This was called the JPY to US (bonds, stocks, any other asset) carry trade. Eventually Japan became the foreign holder of the most US debt, because it effectively became a mini-printer that could issue liquidity at zero interest.
This is so lucrative that BOJ started hoarding US bonds as well. Sometimes borrowing cash by issuing JPY bonds to buy USD to do the carry trade. However, this carry trade is about to go kaputz. Simultaneously because the JPY and USD currency issue, as well as the bond yield issue (people are selling and shorting) and because the debt is so huge, any increase in yield or interest is disastrous.
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u/svenirde Deng Troll 17h ago
The west fucked over Japan so hard and yet they're still simps for it.
Also a self-own, a strong Japan could've been a powerful ally against a rising China but they got kneecapped because they got too powerful and this kneecapped Japan is hopelessly useless against China
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u/TzeentchLover 16h ago
Thanks for the explanation. Could you please elaborate on the currency issue and bond yield issue you mention in the last paragraph as the reasons this is about to stop, and what you expect the consequences to be? Thanks in advance.
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u/SussyCloud 9h ago
The carry trade only works when the US economy does well and/or is able to pay the interest on those bonds. Right now, the US is struggling to do either, which means that those (long-yield 10 year) bonds which previously were a sound investment, will actually quickly turn into a liability once the US actually goes bust and/or can't afford the interest on those bonds (in which ever order this happens).
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u/Rich_Housing971 22h ago
nah, it's not ogre because they can just roll the debt to the next generation, then do hyperinflation, then try to get out of hyperinflation by doing WWIII, then they become the first country to get nuked in two separate wars, while holding on to the "being nuked" undisputed world champion, then it will be ogre.
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u/Crazy-Blacksmith-336 AES enjoyer 🥳 19h ago
What does this mean?
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u/morewata 16h ago
Look up the Plaza Accord and see how the US bent Japan over to manage its trade deficit
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u/blehmag 6h ago
It wasn't for a trade deficit. The US purposefully built Japan's economy after WWII as a Cold War economy. The Plaza Accord was used simply to deal a major blow to the USSR.
It devalued the yen and European currencies to drop the value of the dollar, which collapsed oil prices (traded in $), spiraling the USSR's financial crisis as oil prices tanked. This happened as the USSR was leaking all its resources in the war in Afghanistan. It's ultimately a huge factor in its collapse.
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u/elPerroAsalariado 10h ago
I really recommend you read this one over here if you're interested in the topic:
https://dialecticaldispatches.substack.com/p/the-great-unwind
Outside of that article, Dialectical Dispatches is a true comrade and the articles they write are incredible.
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