July 9, 2026 | Japan: Two Bad Trends Accelerate Simultaneously

This newsletter has been covering Japan’s descent into financial chaos since 2023. See:

How Far Can The Yen Fall Before Japan Goes Bankrupt?

How a Country Goes Bankrupt, In 10 Steps

Japan Enters Its Death Spiral

Next Year’s Wild Card: The Yen Carry Trade

Now the death spiral is accelerating.

These Trends Don’t Go Together

The yen is falling versus other currencies, including the U.S. dollar…

…while government bond yields are spiking:

Each trend, on its own, is unsustainable: If interest rates rise beyond a certain point, credit becomes too costly and the economy crashes. And if a currency falls too far, it ignites uncontrollable inflation, which also crashes the economy.

What happens when both trends accelerate in the wrong direction at the same time? I don’t know, and it’s a safe bet that the Bank of Japan doesn’t either. Wolf Street recently explained the dilemma:

This type of collapse of the yen has led to a surge of the wrong kind of consumer price inflation, not stemming from rapidly growing demand and salaries, but stemming from soaring import prices of fuels, foods, and consumer products – despite massive government subsidies at the wholesale level to contain those effects.

Yield curve control (YCC) is now totally off the table. To stem the slide of the yen, the BOJ has been forced to do the opposite of YCC: Quantitative Tightening, which has contributed to surging long-term yields and rate hikes. There is no easy exit for the BOJ. What is needed is much more QT and substantially higher policy rates.

But as noted previously, rising interest rates, beyond a certain point, are fatal.

And so the fiat currency experiment ends, consumed by its own contradictions.

John Rubino July 9th, 2026

Posted In: John Rubino Substack

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