A little over a month ago, we first (and the Economist about a month later), summarized the plight of Japan’s soaring inflation and contracting economy with one word: rice…. well, technically it was a few more words. This is what we said:
What is ironic, is that Japan does not actually have high core inflation; it does however have soaring rice prices which have skewed inflation expectations across the population as rice is a huge component of the overall CPI basket. Meanwhile the BOJ is scrambling to contain inflation – which has tumbled ex food with real wages near record lows – and is tightening conditions by raising rates even though it has zero control over food inflation. However, as a by product of its monetary policies and strong yen, the bond market is crashing every day now, and soon this bond crash will spread to Japan’s banks and global markets, sparking a global crisis.
TL/DR: Japan will unleash the next financial crash because the Japanese are now poor farmers.