Japan Is Perhaps the Most Important Risk in the World, an Interview with Jim Grant and Christoph Gisiger

The Japanese bond market is a financial time bomb whose fuse has been lit. From Christoph Gisiger and Jim Grant at themarket.ch:

Speculation is mounting that the Bank of Japan is losing control of the bond market. Jim Grant, editor of «Grant’s Interest Rate Observer», believes this could trigger a shock to the global financial system. He also explains why he expects further surges in inflation and why gold should be part of your portfolio.

The news caught markets off guard: On December 20th, the Bank of Japan surprisingly extended the target range for the yield on ten-year government bonds to plus/minus 0.5%. A move that not a single economist had expected.

This week, the Bank of Japan could announce a major policy shift amid rising government bond yields and a strengthening yen. Although barely a month has passed since the BoJ’s last meeting, the bond market is already testing the new upper limit of the yield curve control regime.

«To us, Japanese interest rate policy resembles the Berlin Wall of the late Cold War era, a stale anachronism that must sooner or later fall,» says Jim Grant. For the editor of the iconic investment bulletin «Grants’ Interest Rate Observer,» recent developments in Japan pose an underestimated risk to global financial markets. Not least because virtually no one is talking about it.

In an in-depth interview with The Market NZZ, which has been slightly edited for clarity, Mr. Grant explains what it means for financial markets if the Bank of Japan is forced to scrap its yield curve control policy. But first, he says why he doesn’t believe inflation will end soon, why bonds may be at the start of a long bear market, and why he believes gold is the best choice as a store of value.

«If the past is prologue and if the great bond bull market is over, then on form, we are looking at what could be a very prolonged and perhaps gradual move higher in interest rates»: Jim Grant.

«If the past is prologue and if the great bond bull market is over, then on form, we are looking at what could be a very prolonged and perhaps gradual move higher in interest rates»: Jim Grant.

What do you observe when you look at the financial world today?

Well, it’s always the same, and – here’s the catch – it’s always a little different. The trick is to identify the unique or unusual feature of a familiar cycle. In this regard, it helps to know a little bit of financial history, and to just that extent it helps to be a little old. But what is not helpful is to mistake the past for a certain roadmap to the future.

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