Written by Bryan Lutz, Editor at Dollarcollapse.com:
Bond yields in leading Western countries are rising. Japan is leading the way, and revealing a dangerous mathematical pattern in the process.
Like the Fibonacci sequence, where each number is the sum of the two before it, Japan’s debt crisis compounds and accelerates with each new development. Japan’s 40-year bond yield hit 4.213%, the highest since its introduction, rising almost a full percentage point since the beginning of the year. That’s important for us to monitor because when bond yields are rising it becomes harder for governments to pay back that debt. And Japan’s debt problem doesn’t just add up—it multiplies.
Japan’s Debt-to-GDP ratio is one of the highest in the world, and it is the highest among Western-aligned nations. But, the weight of debt is something the Bank of Japan has been trying to reel in, along with inflation. But in the Fibonacci pattern of escalating problems, here comes the next number: Japan’s new “Iron Lady” Prime Minister Sanae Takaichi has a different idea. She pledged a two-year halt to the 8% consumption tax on food, aiming to boost the GDP side of the Debt-to-GDP ratio rather than tackle the debt itself.
The price tag is around $31 billion annually in lost revenue and tax relief for the everyday person that adds another layer to an already compounding crisis. Like the Fibonacci sequence reaching higher numbers faster and faster, each new fiscal decision builds on the problems before it, creating a spiral that’s increasingly difficult to escape.
The Wall Street Journal reports:
Japan’s Long-Term Bond Yields Surge as Looming Election Triggers Fiscal Worries
“Japan’s long-term government bond yields surged to multi-year highs Tuesday, spurred by fears that an upcoming election could lead to a consumption-tax rate cut that might worsen the country’s public finances.
A key focus of the campaigning will be a potential cut to Japan’s consumption tax, as both ruling and opposition parties seek to win over voters with measures to alleviate the burden of rising living costs.
Prime Minister Sanae Takaichi has already said that her party is mulling a plan to suspend the sales tax on food and beverages for two years. On Monday, she confirmed plans to dissolve the lower house of parliament, saying that official campaigning will start on Jan. 27 and voting on Feb. 8.
Such a tax cut could take a big chunk out of government revenue, potentially raising alarm about the sustainability of Japan’s sizable debt.
A consumption tax cut could cost around $31 billion annually in revenue, so how they are funded will be important for markets, MUFG Bank’s senior currency analyst Michael Wan said in a note…
…On Tuesday, the yield on 10-year JGBs rose 4 basis points to 2.310% after earlier touching 2.330%—the highest since February 1999, according to data provider Quick. The 20-year yield climbed 9.5 basis points to 3.350% and the 30-year yield jumped 10 basis points to 3.710%. The 40-year yield rose 6 basis points to 4.005%, a peak not seen since at least 2015, Quick data showed.”
If you want to know what the long-term outlook for a country looks like. Look at their treasury bond yields, yields will tell you how much trust the market has in a given nation’s government. Even with a small drop in tax revenue like $31 Billion, Japan’s 40-year treasury bond yield continues to rise. Over the past five years, Japan’s 40-year bond yield has risen nearly 4%. We are now entering the second stage in Japan’s now, controllable debt spiral.
As the nation’s debt continues to compound, here’s where stage two is on the fibonacci sequence.
In the Fibonacci sequence, the numbers start small—0, 1, 1, 2—but soon accelerate beyond control: 3, 5, 8, 13, 21, 34.
Japan is now at that inflection point where each subsequent problem becomes dramatically larger than the last. Since Japan is the largest foreign holder of U.S. Treasurys, their bond market troubles could ripple globally, potentially pushing up yields in other countries as Japanese investors keep capital at home.
Once a debt spiral enters its compounding phase, it becomes exponentially harder to reverse. For investors and policymakers worldwide, Japan is doing more than leading the way in rising yields. Japan is providing a real-time case study in what happens when fiscal mathematics overtake fiscal discipline.
The sequence continues… The next numbers will be larger still. The question isn’t whether Japan’s debt will compound further, but whether other Western nations with rising bond yields are following the same mathematical progression, just a few numbers behind. That looks to be the case.
