Nov 16, 2025: Japan drops a $110B stimulus bomb, and global markets immediately feel the shockwave.
Bond yields jump to 1.73%.
The US–Japan rate gap collapses from 3.5% → 2.4% in just ten months.
And with that, the math behind $1.2 trillion in global carry trades just broke.
⚠️ The Trade That Carried the World
For 30 years, hedge funds ran the same play:
Borrow yen at 0% → Buy US stocks, EM debt, real estate, crypto → Pocket the spread.
With leverage? That became 40% annual returns for doing nothing.
But now the spread is gone — and after hedging, the trade is outright negative.
This isn't sentiment.
It’s arithmetic.
🇯🇵 Why This Happened
Japan’s stimulus isn’t creating inflation. It’s creating yield.
• Money velocity has collapsed to 1.42, down 29% since 2000
• Consumers save stimulus instead of spending it
• AI slashes service inflation by ~40%
• China exports deflation with industrial overcapacity
Prices stay flat, but bond yields rise because debt supply explodes.
Japan must issue $110B → buyers demand higher yields → debt service becomes a monster.
At 263% debt-to-GDP, every +1% in yield costs Japan $26B/year.
This forces yields higher… without inflation.
🎯 The Result
The interest-rate advantage vanishes.
Borrowing in yen to buy dollars now loses money.
So every institution running this trade faces the same choice:
Exit or bleed out.
Over $500B in carry positions must unwind.
No panic — just legal fiduciary requirement.
But the second wave is worse.
🔄 Japan Pulls Capital Home
Japanese institutions hold $3.2T in foreign assets.
For the first time in decades, domestic bonds actually pay something.
Capital repatriates.
The world’s biggest creditor becomes a seller, not a buyer.
When $800B of global liquidity exits, markets don’t drift down —
they gap down until forced sellers meet any buyer at any price.
💥 Here’s What the Models Show
• US equity multiples compress 21x → 16x
• Nikkei drops 12% as a stronger yen crushes exporters
• Emerging markets lose ~30% of external funding
• Credit spreads blow out 100 bps
Liquidity disappears.
Not because of recession —
because the firehose of cheap yen is shutting off.
🏛️ Enter the Fed
The Fed ending QT on Dec 1 isn’t stimulus — it’s surrender.
They see Japanese capital evaporating.
The only buyer left for Treasuries…
is the Fed itself.
This is fiscal dominance.
This is the regime change everyone ignored.
📉 Deflation vs. Liquidity
Japan’s move proves the new global equation:
Technology deflates faster than government spending inflates.
The collision doesn’t create balance —
it creates chaos.
📌 Bottom Line
This isn’t a forecast.
This is the mechanical outcome of a yield shift in the world’s most overleveraged bond market.
Prepare for the regime break — or risk becoming part of the fallout.
