Expect a Spike in Long-Term Japanese Interest Rates; Currency Crisis Just Around the Corner

I expect a spike sometime in the near future in long-term Japanese interest rates. People have been saying this for years, but the time may finally be at hand.

The following headline is what tipped me off: BOJ chief expects no spike in long-term Japan interest rates.

Japanese long-term interest rates should not shoot higher as a result of money flowing out of government bonds, Bank of Japan Governor Haruhiko Kuroda said on Saturday.

Kuroda added, however, that it would be natural for long-term rates to rise over time if Japan meets its goal of pushing inflation up towards two percent.

He said a shift in funds from Japanese government bonds to stocks and into lending was already taking place but that the BOJ was increasing its balance of JGB holdings at an annual pace of 50 trillion yen.

"The BOJ dealt with short-term volatility in bond prices by adjusting its market operations," Kuroda told reporters after a two-day meeting of G7 finance officials.

"I do not expect a sudden spike in long-term bond yields. In the long-run, if the economy recovers and inflation heads towards two percent, we might see nominal interest rates rise but that's natural."

Currency Crisis Just Around the Corner

When Japanese inflation spikes higher (and it will), the only way the Bank of Japan will be able to suppress long-term rates is to buy every long-term bond on the market.

A currency crisis in Japan is now just around the corner.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com