yield curve control japan

BOJ And JGB Show YCC Impact On JPY For Whole World To See

By davidgyoung | Alternative Investing | 16 Jun 2022

The global financial system continues to unwind and meltdown, dragging "dollar hegemony" and "reserve currency" status with it.  Japan, long serving as an experiment and glimpse into the future, is now putting on display the mechanics and implications of Yield Curve Control (YCC). 

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Here is a chart of the Yen (JPY) versus USD.  As you can see below, a weakening in the Yen is gaining substantial momentum since early March:

jpy versus usd

The BOJ (Bank of Japan) has stubbornly and relentlessly perhaps maintained its commitment to defending the 0.25% on the JGB ten year.  This is Yield Curve Control (YCC).  This is where a central bank declares that it will not let a particular yield at a given maturity move beyond a certain level.  In this case, the BOJ has explicitly told the market it will not let the yield on the JGB ten year to rise above 0.25%. 

Easy, right?  Just click a few buttons and all is well.  A woke, elitist university professor might bloviate on and on about MMT and how easy it is, but life unfortunately is not that simple.  Why are they desperate to defend 0.25% on the ten year?  If they don't keep yields below that the entire Japanese economy and society could implode and dissolve because the level of debt is so high to GDP any move higher in rates is bone crushing.  There are a few problems however.  One of them is the fact that if you defend the JGB "come hell or high water" then you crush the currency.  See above. 

Does this sound familiar?  It should if you reside in America or another nation with a fiat system and debt/GDP well above 100%.  Unfunded liabilities in America exceed $250 Trillion (with a T) and total government debt outstanding is over $31 Trillion.  A hard default on this means debt holders get back their cash with a huge haircut.  A soft default is when the gubbamint goes stealth mode and pays everyone back, but when you get back your principal the currency in which the debt is paid has little to no purchasing power (i.e. print your way out - see this prior piece on defaults and Bitcoin). 

The ECB just ordered it's think tanks and parasitic staff of economists to "prepare alternatives" to counter the current crisis.  The yen is in free fall.  Yields on the ten year UST exploded above 3.00% for the first time in quite a while.  Spreads between high yield corporate debt and government bonds are rising at a rapid rate similar to other crisis while consumer confidence plunges, as shown below:

high yield bonds spread

There's merit in watching JPY very closely along with that 0.25% level on the ten year JGB.  The market is starting to really call out the BOJ on this.  JPY should serve as a warning and canary in the coal mine for the entire world.  Perhaps we have a chance now to witness in real time the unraveling of a fiat based system.  Japan is the furthest along down the line if you will with this fiat experiment.  The United States is not that far behind it. 

Don't think the currency and bond markets in America could unravel and hence the world?  Whatever you say Yellen. 

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davidgyoung Verified Member

BTC since 2013. Investor. Entrepreneur. Always looking to learn and develop.

Alternative Investing
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