The Japanese stock market cracked on Wednesday, plunging -7% in one session. Money printing is not a risk-free solution to unsustainable government debts and deficits. The Nikkei 225 Index of Japanese stocks rallied over 80% in local currency terms in the space of 6 months and ended in a parabolic upside move that broke down and mini-crashed this week. Accelerations higher (or lower) are typically ending patterns in stock markets.
The JPY/USD currency rate has also had an enormous move, in the opposite direction. The JPY has plunged by over 30% versus the USD over the same 6 month time frame. These are historic moves and a sign of things to come for capital market investors.
Japan's gross government debt/GDP is over 230% and rising. Efforts made by the Bank of Japan to create enough inflation (targeting 2% p.a.) in order to reduce the nominal value of the debt they are carrying could have disastrous consequences if Japanese government bond yields rise above the 2% level. Above 2%, the tax revenues collected by the Japanese government would be insufficient to meet the interest payments on Japanese government bonds as they fall due. Yields have spiked from 0.30% to 1.00% over the past six weeks. If this upward trend continues, we may see fireworks across a whole range of global equity and bond markets. In the end, money printing is no panacea for fiscal irresponsibility and creates many more problems than it solves.