Less than a week ago, we wrote that "As Yen Crash Accelerates, It Puts Catastrophic End Of MMT Experiment In The Spotlight" a less than cheerful assessment echoed this morning by Bloomberg, which writes that "Japan Starting to Crack as Yen Tumbles With Stocks and Bonds"noting that despite the yen crashing to a 24-year low (for the same reasons we have repeated again and again, namely you can't keep your 10Y yield at 0.25% and avoid a currency collapse in a scorching inflationary environment), Tokyo stocks were down the most since March.
But there was another major development, and one which suggests that days of fiat, and MMT are numbered: with Japanese yields surging, the Bank of Japan today bought more than 1.5 trillion yen of government bonds to defend its yield curve control target as the 10Y JGB rose above 0.25%, the upper end of the BOJ's YCC corridor.
This is a "truly extreme" level of money printing given that every other central bank in the world is tightening policy. It is one of the reasons why we have been bearish on the yen. And as so many have argued, currency intervention in this environment is simply not credible given it is the BoJ itself that is the cause of yen weakness.
More broadly, Saravelos echoes what we said in our preview of the end of MMT, writing that he worries that "the currency and Japanese financial markets are in the process of losing any sort of fundamental-based valuation anchor."
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