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This is the daily chart in the field of global macro.

Core Japanese CPI rose to 4.2% y/y in today’s report, which is the highest since 1981.

Normally, you would think that means the Bank of Japan should be tip-toeing out of ultra-easy monetary policy but they’re so committed to fighting inflation and have gone so far down the QE pipeline that there’s no way out. BOJ Governor Ueda highlights that prices should be falling so and that they’re committed to breaking the disinflationary mindset.

It is important for them to consider what they desire. The Japanese economy has lost its energy due to low inflation and declining demographics. However, Japan remains an extremely wealthy and steady nation.

Experiencing a phase of elevated inflation after four decades of increasing debt and uncontrolled government expenses has the potential to be extremely disastrous. In actuality, this could potentially go down in history as one of the most monumental financial mistakes.

The truth is that having low inflation is not a major issue.

The current situation causing worry is the fact that even though inflation is increasing, the yen is decreasing in value. This may be a result of routine end-of-quarter activities and technical trends, but it is possible that Japan could experience a phase of inflation and a declining currency. If the Bank of Japan is obliged to conclude YCC and very low interest rates, there will undoubtedly be some fluctuations; however, it cannot be assumed that the long-term effect will be positive for the yen.

In general, betting against Japan’s debt problem has not been profitable in the past few decades. However, if there was a factor that could potentially lead to its downfall, I believe it would be inflation. Although I am uncertain if this is the case, I feel that people are underestimating the severity of the situation and it could ultimately have a devastating impact on the global financial markets.

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