Market Analysis: Japan's "debt illusion" is concerning, artificially low Interest Rates may trigger a Currency Crisis.

According to a report by Jin10 data on November 27, the Financial Times analysis pointed out that Japan's government debt has long been at astronomical levels; however, over the past decade, government bond yields have mostly remained low, creating a dangerous illusion that the massive debt is not a problem. The fiscal stimulus plan recently announced by the new Prime Minister, Suga Yoshihide, aimed to demonstrate a policy difference from his predecessor, but has instead become the latest example of this dangerous illusion. The reality is that Japan's massive debt is real, while low interest rates are an artificial illusion. The Bank of Japan has suppressed rates to target levels through large-scale bond purchases and previously implemented yield curve control policies, artificially stifling the return of government bond yields to market pricing levels. This mechanism was functioning before the outbreak of the COVID-19 pandemic, but the ensuing wave of inflation led global central banks to collectively raise interest rates, shifting from quantitative easing through asset purchases to quantitative tightening. In fact, the COVID-19 pandemic has ended Japan's interest rate suppression experiment—leading the world into a high interest rate equilibrium. Persisting in suppressing interest rates in this environment could trigger a terrifying cycle of currency depreciation.