Japan's Lehman Moment

Author: Aelia Capitolina; Source: X, @Areskapitalon

A policy option that lacks even a legal basis being seriously considered means all normal options have been exhausted. The expiration date of this thirty-year gamble has arrived.

On March 24, 2026, Japan’s Ministry of Finance sent an unusual inquiry to the oil trading departments of several major banks in Tokyo: is it possible to intervene in the crude oil futures market?

After the news broke, JPMorgan’s Chief Foreign Exchange Strategist for Japan immediately commented that the likelihood of Japan actually entering the crude oil market is “extremely low,” as it is currently unclear whether the Ministry of Finance even has the legal basis to participate in crude oil futures trading, and heads of major global exchanges have previously expressed opposition to any government intervention in the oil futures market.

What does it mean for a government to seriously consider actions it may not have the legal authority to take? It means it has exhausted all legally permissible tools.

This detail is a window through which we can see how a country with the world’s fourth-largest economy and $5 trillion in overseas assets has gradually walked into a dead end with no exit over thirty years of path dependence.

I,

To understand why Japan has reached the point of shorting crude oil futures, we need to pull the timeline back further.

In September 1985, the finance ministers of the United States, Japan, West Germany, France, and the United Kingdom signed an agreement at the Plaza Hotel in New York, with the core demand being a significant appreciation of the yen and the mark to alleviate the increasingly severe U.S. trade deficit.

The essence of this agreement was that the order provider presented a forty-year bill to the dependent: since 1945, Japan had achieved an economic miracle under the security guarantees and market access provided by the U.S., freeing up GDP that should have been invested in the military for export-oriented industrialization. The premise of this entire economic miracle was that the U.S. was willing to tolerate Japan’s continuous large trade surplus because the Cold War required Japan to act as an anti-communist bastion in Asia. By 1985, the hollowing out of American manufacturing and the trade deficit had evolved into a serious domestic political issue, conditions had changed, and the bill was due.

At that time, Japan was the world’s second-largest economy, holding a large amount of U.S. Treasury bonds, theoretically possessing considerable negotiation leverage. The subsequent monetary policy coordination exhibited by France and Germany, which also signed the Plaza Accord, was far more proactive in defending their interests than Japan’s, the difference being that the political tradition in Europe has a legitimate basis for “equitable game between sovereign states,” whereas Japan had never established such a concept in its relations with the U.S. The result was that Japan fully accepted the terms of the agreement, causing the yen to appreciate from 240 yen to 1 dollar to 120 yen in just two years, a doubling in value.

To cushion the impact of the yen’s surge on export-oriented businesses, the Bank of Japan chose to significantly lower interest rates. This was a technical policy decision, but it was selected over other options, such as using the purchasing power from the appreciation to promote structural transformation, develop domestic demand, and open up the domestic market. The fundamental reason was that structural transformation would disrupt existing domestic vested interests, and in a society where “maintaining order” is the highest political value, the cost of disrupting existing interests is always higher than the cost of maintaining the status quo, even if maintaining the status quo requires paying for it with asset bubbles.

Thus, cheap funds flooded into the real estate and stock markets, land prices in central Tokyo skyrocketed multiple times within a few years, and the Nikkei index peaked at 38,915 points by the end of 1989, an era when Japanese companies bought Rockefeller Center and golf memberships were traded for over 100 million yen. Bubbles are never unexpected accidents; they are an inevitable product of a system that refuses to confront structural problems, using inflated asset prices to mask contradictions.

In 1990, the bubble burst, and the Nikkei index halved within a year, real estate prices entered a prolonged decline lasting over a decade, and the banking system was overwhelmed by a mountain of non-performing loans.

II,

After the bubble burst, Japan faced a fundamental choice: to acknowledge the severity of the problem and endure short-term severe pain to thoroughly clean up bad assets and push for structural reform, or to use monetary and fiscal policies to delay the exposure of the problem and maintain superficial stability in the system.

Japan chose the latter, and this choice seemed “reasonable” at every specific moment: the interest rate cut in 1991 was to avoid an immediate collapse of the banking system, the fiscal stimulus in 1995 was to prevent an economic downward spiral, the zero interest rate policy in 1999 was because traditional room for rate cuts had been exhausted, quantitative easing in 2001 was because zero rates were not enough, Abenomics’ “three arrows” in 2013 were because the previous twenty years of gentle measures were insufficient, and negative interest rates in 2016 were because the economy still could not operate under positive rates.

Each step was an inadequate supplement to the previous one, and each step pushed Japan deeper into dependency.

Over these thirty years, a profound structural change occurred in Japanese society, its impact far more profound than any single policy mistake. The zero interest rate and weak yen formed a dual-track model: domestically, interest rates were pushed to zero or even negative, and the government maintained public spending through continuous issuance of government bonds.

The Bank of Japan engaged in large-scale purchases of these bonds through quantitative easing, and starting in 1991, Japan has been running continuous fiscal deficits, with the government debt-to-GDP ratio climbing from 60% to over 230%. By the end of 2025, total debt reached a historic high of 134.2 trillion yen, while the average financing cost from 2016 to 2025 was only 0.33%. Under almost free financing costs, this towering debt mountain appeared manageable.

Abroad, things moved in another direction: domestically low interest rates meant that Japan’s savers, life insurance companies, pensions, and banks earned almost nothing domestically, forcing them to look overseas for assets that could generate positive returns. The weak yen further strengthened this incentive, giving export companies price competitiveness under the weak yen, while institutional investors could earn both interest income and currency appreciation gains by purchasing and holding overseas assets in a weak yen environment.

After thirty years, Japan accumulated a massive presence in the global financial system: life insurance companies held over $1.5 trillion in overseas securities, and the GPIF alone held about $424 billion in stocks and $450 billion in bonds overseas, with the total overseas assets of all Japanese institutions exceeding $5 trillion. Japan is the world’s largest net creditor nation, with net overseas assets exceeding $3.7 trillion and is the largest single foreign holder of U.S. Treasury bonds, holding over $1 trillion. Japanese capital has flowed into almost all major economies’ bond and stock markets, becoming the soil beneath the liquidity edifice of the global financial system.

This is the essence of Japan’s thirty-year “symbiosis” with the international financial system: Japan’s savings flow through institutional investors to the globe, providing financing for governments and enterprises in various countries and lowering global borrowing costs. In return, Japan’s institutions earn investment returns that cannot be obtained domestically, used to meet policy commitments, pension obligations, and bank operating costs.

Japan’s economic growth itself has stagnated, with nominal GDP dropping from $5.55 trillion in 1995 to $4.27 trillion in 2025, real wages falling by about 11%, and its global share shrinking from 17.8% to 3.6%. However, through the repatriation of overseas investment income, the basic operation of society has been maintained.

This is a simpler way of maintenance than autonomous reconstruction; it does not require touching domestic vested interests, does not require painful structural reforms, and does not require difficult political decisions. It only requires one condition: the international financial system operates normally, interest rates remain low, exchange rate fluctuations are predictable, and trade channels are open, with the U.S. willing to continue providing security guarantees and market access.

This condition has held for thirty years; it has persisted for so long that every level of Japanese society no longer sees it as a condition that needs active maintenance, but as an axiom that requires no verification.

III,

Under the protection of this axiom, the Japanese government bond market has quietly grown into the world’s second-largest sovereign bond market, with a total scale of $7.3 trillion, and it operates with a characteristic not openly discussed.

In the 2026 fiscal year, the Japanese government plans to issue 180.7 trillion yen in government bonds, with new deficit financing accounting for about 29.6 trillion yen. The refinancing of bonds alone will reach 135.8 trillion yen, accounting for over 75% of the total issuance. The government needs to issue new bonds to pay the interest and principal of old bonds, and the interest rates on new bonds are higher than those on old bonds: the average financing cost from 2016 to 2025 is 0.33%, while the current yield on the 10-year government bond has reached 2.37%, approaching 3.7% for 30-year bonds and nearly 3.9% for 40-year bonds. Each round of refinancing is completed at a higher cost.

This structure shares mathematical characteristics with a Ponzi scheme; early participants’ stable returns do not come from growth in the real economy, but from the inflow of funds from later participants, and in the context of the Japanese government bond market, “later participants” refer to the continuously issued new bonds and the Bank of Japan’s money printing purchases.

Japan’s government interest payments have already surpassed 31.3 trillion yen, exceeding the 30 trillion yen mark for the first time. The Ministry of Finance’s own estimates show that if interest rates normalize to 2%, which is still considered low by global standards, by the early 2030s, the cost of debt repayment will consume over 40% of the primary budget.

Who is supporting this structure? The Bank of Japan holds over half of the bond stock, with the remainder held by domestic banks, life insurance companies, pensions, postal savings, and retail investors, totaling about 90% of government bonds held by domestic investors. This number is often used to argue for the “safety” of the Japanese government bond market, as it is held by domestic entities and won’t face panic selling by foreign capital.

However, the “90% domestic ownership” figure hides a fatal fact. A February 2026 report by Fortune magazine used a precise term to describe this structure: mutual assured destruction. Banks hold government bonds as assets; if bond prices collapse, banks’ capital is insufficient. Life insurance companies hold government bonds to match long-term liabilities; if bond prices collapse, their solvency crumbles. Pensions hold government bonds as “safe assets”; if bond prices collapse, pension payments are threatened. The central bank itself holds over half of the stock; if bond prices collapse, the central bank’s balance sheet faces technical bankruptcy.

Every participant is locked inside, not because government bonds are good assets, but because the cost of exit is greater than the cost of continuing to hold.

At the same time, the true force driving daily price changes comes from entirely different places. Data from the Japan Securities Dealers Association shows that foreign investors now account for about 65% of monthly cash trading volume in government bonds, whereas in 2009, this figure was only 12%. Although 90% of the stock is held by domestic institutions, most of these domestic institutions are locked in by “mutual assured destruction,” unable to buy or sell. The actual trading in the market, which determines prices through buying and selling, comes from that 65% foreign capital.

These are hedge funds, global macro funds, and trading departments of foreign banks, with no “patriotic obligations” or systemic constraints. If they judge that government bonds will continue to fall, they will short, sell, or withdraw.

On January 20, 2026, the fragility of this structure was violently exposed.

IV,

That morning, Prime Minister Sanae Takaichi announced the dissolution of the Diet and elections on February 8, while also launching a stimulus plan of 21.3 trillion yen, including a two-year suspension of the food consumption tax. After the announcement, a 20-year government bond auction faced catastrophic demand shortages; traders later described it as “the most chaotic trading day in years.” The yield on 40-year government bonds surged to 4.24% within hours, marking the first time it had broken 4% since its introduction in 2007; the 30-year yield jumped 25 to 30 basis points in a single day, the largest single-day fluctuation since 1999.

Most shocking was how little trading volume was needed to trigger this chaos: just $170 million in 30-year bonds and $110 million in 40-year bonds trading caused $41 billion in value destruction across the entire yield curve. In a $7.3 trillion “market,” a few hundred million in trading could lead to tens of billions in value annihilation, because the real liquidity providers had already exited.

The contagion spread globally within hours. The yield on U.S. 10-year bonds surged nearly 6 basis points, and the 30-year yield approached 4.93%, close to the psychological barrier of 5%; European sovereign bonds were simultaneously pressured. U.S. Treasury Secretary Bessent called Japan’s Finance Minister to discuss the situation as panic spread through global markets.

Then the crisis was “resolved”: officials made statements to calm the market, the New York Fed conducted a “currency check” asking banks about their dollar/yen positions, and the market interpreted this as a signal for U.S.-Japan coordinated intervention. The yen quickly fell from above 159 to around 152 against the dollar. At the Bank of Japan’s meeting on January 23, rates were kept unchanged but indicated potential future rate hikes. After the elections on February 8, Takaichi’s Liberal Democratic Party won a supermajority with 316 seats, reducing uncertainty, and yields fell from their peaks, with the 40-year yield dropping to 3.62% and the 10-year back to around 2.1%.

The market breathed a sigh of relief, with terms like “technical readjustment,” “election noise,” and “not a structural crisis” appearing in analysts’ reports. State Street’s analysis clearly stated, “Japan is 90% financed domestically, with no leverage and no forced seller risk”; these judgments all made sense in the static environment at the time.

But they overlooked a key issue: the reason the January crisis could be “resolved” was that four conditions were simultaneously met. Officials’ statements were credible because the trigger for the crisis was merely a political announcement that could be corrected or downplayed; the U.S. was willing to cooperate because the collapse of Japanese government bonds pushed up U.S. Treasury yields, making it in the U.S.'s interest to help stabilize the situation in Japan; the central bank had policy space because inflation, although at 3%, was not accelerating, allowing for both hawkish stances and dovish flexibility; and the crisis had a built-in endpoint: the elections on February 8. All these conditions shared a common premise: no sustained external pressure.

Five weeks later, the U.S. and Israel launched military strikes against Iran.

V,

On February 28, 2026, the U.S. and Israel attacked Iran, prompting the Iranian Revolutionary Guard Corps to announce the closure of the Strait of Hormuz, with tanker traffic dropping to near zero, cutting off about 20% of global oil and liquefied natural gas supplies. Brent crude oil prices soared to a maximum of $126 per barrel, the largest energy supply disruption since the oil crisis of the 1970s.

For Japan, this was not a geopolitical event unrelated to it. Over 90% of Japan’s crude oil imports come from the Middle East, most of which pass through the Strait of Hormuz, causing energy import costs to suddenly surge. The yen began a continuous depreciation against the dollar from early March, and by the end of March, it had surpassed 160, nearing the level at which the Japanese government spent $37 billion to intervene in 2024.

Finance Minister Kitagawa stated that the government was prepared to take “bold actions” to respond to exchange rate fluctuations, but the market noted another detail: the Ministry of Finance began inquiring with market participants about the possibility of intervening in crude oil futures. Iran indicated it did not intend to negotiate directly with Washington, instead proposing a five-point plan that would see Iran control the Strait. On March 26, Iran further announced that only vessels from China, Russia, India, Iraq, and Pakistan would be allowed to pass.

Japan was excluded. Prime Minister Takaichi had previously clearly aligned with the U.S. in Washington, praised Trump, condemned Iran, and signed a joint statement expressing willingness to “contribute to ensuring the safe passage of the strait,” thereby burning bridges with Iran in front of the world.

Ironically, while she was in Washington “demonstrating loyalty,” Iranian Foreign Minister Zarif had expressed willingness to let relevant Japanese vessels pass through the strait due to the long-standing diplomatic friendship between Japan and Iran, but that door closed the moment Takaichi chose to bet all her chips on the U.S. order.

Oil reserves began to be released; Japan announced it would release 80 million barrels from its national reserves as part of a coordinated release of 400 million barrels with the IEA, along with approximately 13 million barrels jointly held by Saudi Arabia, Kuwait, and the UAE. The CEO of Tokyo consulting firm Yuri Group bluntly stated: “Reserves are a short-term supply and price stabilizer, but they are mainly buying time and cannot fully offset the disruption in the Strait of Hormuz.” After the release, national reserves decreased by 17%; if the strait remains closed for months, what then?

This is the background against which the idea of shorting crude oil futures emerged: oil reserves are counting down, the currency is plummeting, and bond yields are soaring. The most significant ally is the direct cause of all this, and having burned the independent diplomatic channel with the crisis instigator, what else could be done? To ask banks if they could short oil in the futures market.

This is not a rational policy option; it is a symptom of complete policy despair.

VI,

The closure of the Strait of Hormuz has pushed the Bank of Japan into a genuine impossible triangle. The soaring oil prices directly feed into inflation through import costs, and the yen’s depreciation further amplifies energy prices in yen terms. Japan’s CPI has exceeded the central bank’s target of 2% for four consecutive years, and now there is a new source of sustained external inflationary pressure.

If the central bank is to combat inflation, it must raise interest rates, which would push up government bond yields. With a debt-to-GDP ratio exceeding 230%, every 10 basis point increase in yields means hundreds of billions of yen in additional annual interest expenditure. If the central bank takes another path, increasing government bond purchases to lower yields and stabilize the bond market, it amounts to printing money while inflation is rising. The yen will further depreciate, import costs will rise further, inflation will accelerate, and the yields demanded by the market will increase, requiring the central bank to print more money to buy more bonds, creating a self-reinforcing spiral.

Both paths lead to the same endpoint, differing only in speed and route. Moreover, beyond this impossible triangle, a deeper structural force is at work.

Starting in the 2025 fiscal year (ending March 31, 2026), Japan began implementing a new economic value solvency regulatory system, J-ICS, requiring life insurance companies to value assets and liabilities at current market rates, with solvency ratios reflecting interest rate changes in real-time. This is a technical regulatory change, but it has far-reaching repercussions in an environment of rising government bond yields.

Japan’s four major life insurance companies accumulated large amounts of long-term government bonds with low coupon rates during the zero interest rate era. When yields rose from 0.5% to over 3.5%, the market prices of these bonds plummeted. Under the old system, they could mark these bonds as “held to maturity,” not reflecting losses on their balance sheets. However, J-ICS requires valuation based on economic value; the domestic bond portfolios of the four major life insurance companies, which had not realized losses, swelled to about 9 trillion yen, or $60 billion, four times the previous year.

When solvency ratios fall below safe lines, life insurance companies must replenish capital; in a market panic, it is impossible to issue new stock or subordinated debt to raise funds. The only available source is selling assets to realize existing unrealized gains, with the easiest realizable gains found overseas: in a depreciating yen environment, the value of overseas assets held by Japanese institutions in yen terms increases. Selling overseas bonds or stocks to return to yen can lock in exchange rate gains to replenish capital and meet regulatory requirements.

This is a “rational” asset management decision at each institutional level, but the collective effect is another matter.

Selling U.S. and European bonds pushes up global yields, and rising global yields lead other countries’ financial institutions to face asset depreciation and capital pressure, prompting them to sell assets as well, further increasing global yields. Japanese government bond yields are also driven higher by this global contagion effect, resulting in greater domestic losses that necessitate selling more overseas assets.

And what do they do with the yen they bring back to Japan? Some is used for “portfolio rebalancing,” selling old bonds with a 0.5% coupon to buy new bonds with a 3.5% coupon, which seems like “buying government bonds,” but in essence, it is a stop-loss operation, with a net effect on the market of approximately zero. Additionally, Aviva Investors noted in its February 2026 analysis that under the J-ICS system, life insurance companies can only buy when their solvency buffers are strong enough to absorb additional duration, turning it into intermittent “buying windows” rather than stable demand.

A larger portion, however, becomes cash sitting on the balance sheet, not buying government bonds, because yields are still rising; a bond purchased today at 3.5% may immediately incur new paper losses if yields rise to 4% tomorrow. They are not buying Japanese stocks because the capital usage for stocks under J-ICS is much higher than for bonds, and they are not returning overseas because they just escaped back. The only function of this cash is to satisfy regulatory red lines on the balance sheet; this liquidity is effectively dead.

Japan’s banking system also has another massive pool of idle funds: banks sold a large amount of government bonds to the central bank during the previous quantitative easing phase, receiving yen cash stored in central bank accounts as excess reserves, totaling over 400 trillion yen. Theoretically, this could be deployed in the government bond market to stabilize yields. However, the banks’ investment committees are waiting for signals indicating that “yields have peaked.” In an environment where the Strait of Hormuz remains closed and inflation continues to rise, no one dares to say where the peak is.

The central bank cannot force banks to invest this money in government bonds, as this is a fundamental boundary of central bank authority. Even in extreme situations, if the government were to use emergency legislation to require financial institutions to allocate a certain percentage of assets to government bonds, the consequences would be catastrophic: foreign capital would instantly withdraw from everything in the Japanese market, as “government forcing financial institutions to buy government bonds” in the international financial market implies the precursor to capital controls.

So the overall picture is this: on the foreign side, assets are sold, liquidity is drained, and prices fall. On the domestic side, money has returned but is afraid to invest in any assets, as all assets are depreciating or facing depreciation risks. Both sides are simultaneously losing active liquidity. This liquidity feels as if it has been sucked into a black hole, never to return to the global market.

The narrative that “the great return supports the Japanese market” is an illusion. The amount of repatriation can be substantial, even exceeding a trillion dollars, but if every dollar that comes back to Japan immediately freezes, the larger the repatriation scale, the larger the frozen scale; the more liquidity withdrawn from the global market, the less support obtained domestically. The repatriation itself is part of the illness.

For the past thirty years, Japan has been a source of global liquidity; now it is turning into a grave for global liquidity, where money flows in but never lives again.

VII,

The reason the crisis on January 20 could be controlled was that the U.S. was willing to cooperate. The New York Fed’s “currency check” was a cheap but effective signal, leading the market to buy back the yen on its own. At that time, U.S.-Japan interests were aligned; the collapse of Japanese government bonds pushed up U.S. Treasury yields, so the U.S. had the motive to help stabilize the situation in Japan. Now all these conditions have reversed.

The U.S. cannot help stabilize the yen because stabilizing the yen requires a weak dollar, and a weak dollar would exacerbate the U.S.'s own inflation problem: the closure of the Strait of Hormuz has pushed global oil prices up, and U.S. inflation is rising. The Federal Reserve maintained its rates at 3.5% to 3.75% with an 11-to-1 vote at its March meeting, and the market is pricing in a greater than 50% probability of a rate hike in 2026. Actively weakening the dollar while inflation is rising equates to dismantling one’s own defenses.

The Federal Reserve will also not step in. Lowering interest rates would exacerbate inflation, and quantitative easing would raise inflation expectations, causing long-term rates to rise in response; this would be counterproductive. Dollar swap lines can provide short-term liquidity but do not solve solvency issues.

If Japan attempts to save itself by canceling J-ICS capital requirements to forcibly stop the liquidation spiral, it would mean telling the market that Japan’s financial institutions are effectively insolvent, but the government decides to pretend not to see. J-ICS is a system that has just begun to apply in the current fiscal year, and if the first report hasn’t even been submitted, pausing it would be a catastrophic signal. Moreover, canceling capital requirements wouldn’t make losses disappear; government bonds would still depreciate and inflation would still rise, it would merely stop requiring institutions to reflect these losses on their statements, but foreign traders would immediately read this as Japan’s financial system having much greater real losses than the public numbers indicate, and even the regulatory body is complicit in hiding it. The result would only be greater panic and more intense selling.

Maintaining the rules leads to a continuation of the liquidation spiral, while canceling the rules leads to trust collapse and greater selling. Just like the dilemma faced by the central bank between debt and currency, every option leads to the same endpoint, only the paths differ.

The current stage resembles a quiet, continuous process of global liquidity extraction. Japanese life insurance companies are selling tens of billions of dollars in overseas assets each week to return to yen and fill capital gaps, then doing nothing; there is no panic, no headline news. But this “quiet” is built on a fragile assumption: that the pace of rising yields is slow enough to give institutions time to sell overseas assets in an orderly manner.

Once a trigger point causes yields to jump by 30 to 50 basis points in a single day, the “quiet” will instantaneously become “acute.” J-ICS is calculated in real-time based on market value; a 50 basis point jump in yields means that the solvency ratios of life insurance companies could fall dramatically within a day, not weeks later when additional capital is needed, but by the close of trading today, already breaching regulatory red lines. Multiple institutions would issue sell orders to the global market simultaneously, not tens of billions weekly, but hundreds of billions or even over a trillion in a single day.

The trigger point could be a disastrous auction for ultra-long government bonds, with the bid-to-cover ratio falling below 1.5, or the central bank being forced to make a public, clear choice between “buying bonds” and “fighting inflation,” like when CPI breaches 4%, or a life insurance company’s solvency ratio formally breaking the regulatory threshold, forcing the Financial Services Agency to intervene, which the market would read as “Japan’s SVB moment.” At this moment, the Japanese government and central bank would find their credibility depleted by the crisis, and no one would be able to backstop it.

Regardless of what it is, once triggered, each step in the chain is not the decision of any individual. It is a mechanical output of regulatory rules, risk control models, accounting standards, and market mechanisms; no one can hit the pause button. The central bank cannot stop it, the government cannot stop it, and the Federal Reserve cannot stop it.

The only thing that can stop it is the disappearance of external shocks. The Strait of Hormuz reopening, oil prices returning to $60, inflation expectations re-anchored. But as long as the situation in the Middle East does not return to stability, the fuel for this spiral will continue to be supplied.

VIII,

Japan’s thirty-year symbiotic relationship with the global financial system represents a choice to substitute simpler maintenance for more painful autonomous reconstruction.

This choice has seemed reasonable at every specific moment: every step is easier than structural reform, every step avoids political pain and cost, but the cumulative effect over thirty years has turned Japan into the most actively dependent link in the international financial order while also being its most vulnerable link. The margin for error has dropped to zero, as no leeway has ever been left for systemic mistakes.

When the system begins to err, Japan’s reaction is not to exit the system in search of alternatives, but to pour everything remaining into maintaining the system: shorting crude oil futures, investing $550 billion in the U.S., continuing fiscal expansion, and the central bank committing to unlimited bond purchases.

This is the logic of a Banzai charge and total destruction: not because of a belief in victory, but because there are no longer any positions to retreat to. And the outcome of a Banzai charge has been written in history.

For the past thirty years, Japan has existed as the soil of global liquidity; its end will not be a slow depletion. The $5 trillion in overseas positions, the world’s largest arbitrage trades, and all asset prices built on Japan’s cheap capital will be liquidated, driven mechanically by regulatory rules and market mechanisms, occurring passively, acutely, and uncontrollably.

And perhaps this is the Lehman moment of 2026: a sovereign nation facing credit liquidation after thirty years of symbiosis and dependency with the global financial system; because it is the most vulnerable node in the system, this liquidation will trigger a severe repricing of the entire global financial system.

It is hard to know when this will happen. But everyone should be prepared for it.