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Three charts explain: Why will the Japanese bond market lead to a global collapse?
Author: 2989 Source: X, @punk2898
To help everyone understand, this is --- the DeFi deleveraging in the real world.
How did the Japanese bond market collapse?
1. No one is willing to buy anymore
2. The central bank can't help either
Although the Bank of Japan holds more than half of Japan's national debt, it is powerless in the face of this wave of selling. Market liquidity is poor, with many wanting to sell and few wanting to buy.
How does the Japanese bond market affect the global market?
As interest rates in Japan begin to rise, the cost of borrowing yen increases, making previously profitable arbitrage trades that relied on low rates no longer advantageous. Investors need to repay their loans, leading to a series of deleveraging actions:
• Asset Sell-off: To repay yen loans, investors need to sell the assets they hold (such as stocks, bonds, cryptocurrencies), which will lead to a decline in the prices of these assets.
• Market Volatility: Large-scale asset sell-offs can trigger market fluctuations and instability.
• Changes in capital flow: Funds that previously flowed into high-return markets are now starting to flow back, leading to a decrease in liquidity in these markets and further exacerbating market uncertainty.
After investors sell their assets to obtain US dollars, they need to exchange the US dollars for Japanese yen to repay. Due to a large amount of funds flowing from US dollars to Japanese yen, it further drives the appreciation of the yen.
investors sell assets
What will the future be like?
Deleveraging means reducing debt or leverage. Due to the rising cost of borrowing, investors are forced to reduce debt and sell assets to pay off loans. This behavior can trigger a series of ripple effects globally, leading to falling asset prices and increased market volatility.
In fact, this is no different from the DeFi of the past; it is also a process of deleveraging.
Goldman Sachs believes that this volatility will recur unless there are significant policy adjustments.
The Japanese government may:
The actions of the Bank of Japan are crucial: