Japan’s Iron Lady?
More like Iron Maiden.
Next week, Japan will confirm its first female Prime Minister, and she’s heavy metal.
Sanae Takaichi once drummed so hard in her metal band she broke sticks.
Now she’s about to test if global markets can handle her putting the pedal to the metal.
She’s reviving “Abenomics,” the playbook of cheap yen and government-led growth.
Her goal: a “high-pressure economy” to finally break Japan’s deflation.
Markets loved the sound of it.
The Nikkei 225 just surged nearly 5%, breaking 47,000 for the first time ever.
But bond traders? They’re terrified of the 64-year-old metalhead in charge.
Because her pro-growth push with a still-dovish central bank risks sending long-term yields higher.
Japan’s 30-year yield just hit 3.3%, a record high and up 100 basis points this year.
The problem is that rising Japanese bond yields threaten the yen carry trade, the quiet engine of global finance for 30 years.
Here’s how it works:
• Borrow in cheap yen.
• Convert to USD or another high-yield currency.
• Buy Treasuries, corporate bonds, equities, anything that pays more.
• Pocket the spread as long as rates stay low and the yen stays weak.
As long as Japanese rates stay low, the system works great.
If yields rise, it breaks.
With high yields, the Pacific Ocean of liquidity Japan has provided starts to drain.
Yen-funded trades unwind.
Capital floods back home.
Global liquidity vanishes.
And it’s reflexive.
Higher yields tighten spreads.
Funds and private equity must sell assets to repay yen debt.
Asset prices fall.
Liquidity tightens further.
For 40 years, Japan’s easy money cushioned the world.
Now that cushion is being pulled away.
The tide that lifted everything is retreating.
And the true shape of the world is about to be revealed.
All of it set in motion by a 64-year-old metal-playing Iron Lady from Japan.
