In December, the Japanese financial market is experiencing a significant shift not seen in nearly 30 years! After all, the Bank of Japan has raised the benchmark interest rate to a high of 0.75% for the first time in 30 years, and Finance Minister Katayama has issued the strongest warning yet regarding market intervention.

However, the market's reaction once again exceeded the expectations of the Japanese government: although the yen experienced increased volatility in the short term, it did not escape its weak trend, with the exchange rate against the US dollar once touching the 157 mark. At the same time, the Japanese bond market showed a severe adjustment, with the yield on 10-year government bonds breaking through the critical 2% level, reaching a nearly 25-year high.
This seemingly contradictory market performance, in my opinion, is the Bank of Japan making the same mistakes as its predecessors in the 1990s. The key point is that although Japan experienced significant deflation in the 1990s, it still held onto the real gold and silver accumulated during the dream years of the 70s and 80s! However, in the current situation, on one hand, it has conflicts with all its neighbors to the west, and on the other hand, it again exposes the real issues of vague policy signals, unchanged interest rate differentials, fiscal and monetary mismatches, and high levels of debt!
After the era of ultra-loose monetary policy ends, Japan, emerging from deflation, is facing the real challenges of stagflation and the monetization of fiscal policy, as well as budget deficits!
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