Japan's Money Is Collapsing

So, Japan's economy is starting to

break. And why that's so important to us

is because all of our stock markets and

all of our portfolios and 401ks are

partially built on borrowed Japanese

money and that money is being asked to

come back home. Now, there was a couple

very interesting tweets that went viral

recently, and here's what they said.

Quote, "The measures being prepared by

the Bank of Japan will affect the lives

of billions of people. To the people of

the western countries, I offer my

deepest apologies. This is not a

personal matter. May God's blessings be

upon you." End quote. That tweet got

millions of views. Now, no one really

knows who this person is. The account

goes by the name Uto. It posts

exclusively in Japanese. And over the

last few months, they've sort of

developed a reputation as someone who's

somewhat of a market oracle and a Bank

of Japan insider cuz the things they

keep posting kind of keep coming true.

So 12 days after that first post, they

posted again. Quote, "Japan's wealth is

returning to its homeland by any means

necessary. The Bank of Japan has so

decided."

That post also got millions and millions

of views. And then last week, they

posted a third time. Quote, "Article 589

will be cited far more frequently than

you imagine. Foreign borrowers should

not assume that past approvals guarantee

future funding. A warning to all

borrowers who think they can continue to

refinance through Japan. Article 589 is

universal." End quote. I'll explain

article 589 later in the video because

as these tweets were going viral,

Japan's economy started to sort of

break. For example, the Japanese yen has

gone down to the lowest level against

the dollar in about 40 years. Japan's

government bond yields, aka their

interest rates went way up, and that

usually only happens to what are called

emerging markets, when they're in what's

called a debt crisis. This should not be

happening to the world's biggest

creditor country. Japan then spent $73

billion defending its currency and they

increased their interest rates to levels

that we haven't seen since 1995.

But despite spending that $73 billion

and raising their interest rates, it did

nothing to help the yen. which is also

why they're now doing something they

have never done before in the history of

the modern world, which is that Japan

wants its money to return back home.

Why? Because Japan is essentially being

forced to choose whether it wants to

save its bond market or its currency,

its money. So, in this video, I'm going

to try to explain what all these cryptic

messages mean, like article 589, what

Japan's wealth returning home could

mean, why they're passing their own

stable coin acts, and ultimately what

all this means for the United States and

our own investments. So, with that said,

let's get into it. Hi, my name is Andre

Jick. Hope you're doing well. Come for

the finance and stay for Japan's

economy. Now, in the nerdy world of

economics, they say there's supposed to

be two types of economies, but in

reality, there's actually four. The

developed, undeveloped, Argentina, and

Japan. And that's because Japan has

broken every rule of economics and still

somehow got away with it. Because Japan

has more government debt relative to the

size of its economy than any developed

country in the world, over 200% of GDP.

Basically, that means Japan has more

debt than Greece when Greece collapsed.

They have more debt than any country

that's ever hyperinflated. So, any

textbook would tell you a country like

that should have collapsed decades ago.

But Japan somehow did not. Now, in the

1980s, Japan was what they called a

miracle economy cuz at one point, the

land under the Imperial Palace in Tokyo

was worth more than all the real estate

in California. And then in the early

'90s, that bubble popped and Japan went

into something that no modern economy

had ever experienced, which was three

decades of deflation. The price of stuff

did not go up and their incomes didn't

go up. So to fight it, the Bank of Japan

lowered interest rates to zero and

basically left them there for 30 years.

Money in Japan essentially became free

to borrow. And when money's free to

borrow, a 200% of debt to GDP doesn't

really matter because the interest cost

of having that debt is basically

nothing. Now, there's a second reason

why Japan never collapsed, which is

because of who Japan owes all that money

to. You see, when Greece collapsed, they

owed money to foreigners. When Argentina

defaulted, they owed money to

foreigners. foreigner countries and

investors, they panic. When they panic,

they sell their assets and that's when

it's game over for that country. But

Japan owes the money to Japan. The Bank

of Japan itself holds about 48%

of all Japanese government bonds. So the

central bank literally owns half of its

own government debt. Japanese insurance

companies hold another 20%, Japanese

banks 14% and the foreigners own less

than 8%. Now, here's why that's so

important to Western nations. While the

rest of the world spent the last 20

years printing money, Japan did not.

Since 2004, the US money supply grew by

about 280%.

Canada grew by 370%.

But Japan only grew by 90. Japan was the

only major economy in the world that

kept its money relatively scarce and its

interest rates at zero. That combination

created something called the yen carry

trade. Now the yen carry trade meant if

you were a hedge fund or a bank or an

investor, you could borrow yen at 0%

interest, convert it to dollars, you

could buy basically anything in the

world that paid you more than zero.

Meaning you could buy US treasuries

paying four 5%. You could buy tech

stocks, Bitcoin, anything you wanted and

you made free money. That's estimated to

be worth trillions of dollars of

investments all around the world funded

by borrowed Japanese money. So Japan was

like, we want to get in on this too. So

Japan took its savings overseas because

for 30 years there was nothing worth

buying in Japan. Japanese pension funds,

insurers, banks, households, they all

shipped their money overseas to get some

of that interest. And in the process,

Japan became the world's biggest foreign

holder of US government debt, holding

something like over a trillion dollars

of US treasuries. Japan's pension fund,

for example, the GPIF, which is the

biggest pension fund in the world, holds

hundreds of billions of dollars in US

bonds and stocks. So, think about it

like this. When the US borrows money,

when tech stocks go up, when Bitcoin

goes up, there is a strong chance that

somewhere in that process, it was

partially funded by Japanese money. But

remember, this only works because

interest rates were zero. They are no

longer zero. Japan's interest rates are

going up. And because of that, the

economy is starting to break. Let me

explain. Now, before I explain that, a

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segment. And now, let's get back to it.

So, here's how Japan's economy is

starting to break. Remember that 0%

interest rates were only possible

because the circumstances that Japan was

in, aka the prices in Japan never went

up. Which means when inflation is zero,

you can keep your interest rates at zero

forever because everyone's happy. The

government can carry infinite debt for

free. the world could continue borrowing

cheap money. Everyone's getting richer

and no one's complaining. Okay, so then

what changed? Why did they have to raise

their interest rates? It's because of

something that happened in 2020. That

was the pandemic which led to trillions

and trillions of dollars flooding the

market. There were broken supply chains,

right? Energy prices went way up and the

whole world got inflation. By 2022,

Japan got 2% inflation for the first

time in decades. So, the Bank of Japan

is like, "Okay, we've got some

inflation. What do we do?" All these

other countries are raising their

interest rates to fight inflation. Oh,

look, the US raised interest rates to

5%. That's a lot. Europe's doing it.

Canada's doing it. What do we do? I

know. Let's not raise interest rates. We

also have 200% of debt to GDP. Let's do

nothing. Let's not rock the boat.

Japan held their interest rates at zero

and hoped that inflation would go away.

That decision started to break their

money, the yen. Cuz think about what

happens when the US pays 5% on cash and

Japan pays zero. What happens is money

continues to flow out of the yen and

into dollars. There is no demand for

yen. So the strength of the yen

collapses from around 110 per dollar to

150 then 160. That might continue

working if the country was self-

sustaining, right? But Japan almost has

no natural resources of their own. They

make arguably the best culture in the

world, right? The best food and Pokémon

cards. And I personally love Japan, but

they don't make their own oil, right?

They import almost all of their energy

and all of it is priced in dollars. So a

collapsing yen means everything that

Japan buys from the world gets more

expensive for them, which means more

inflation, which means more pressure on

their yen. And all of that pressure

eventually leads to the biggest change

that economists thought would never

happen to Japan. That change was a

change to their psychology and culture.

What does that mean? It means people now

want a pay raise. You see, for 30 years,

Japanese workers never really asked for

payraises because mostly that's a

western idea because their prices never

went up. So why would you need a pay

raise? 0% inflation froze Japan's need

for payraises. But once inflation

started to happen, workers started

demanding those payraises and they

started getting them. In fact, they got

the biggest payraises in over three

decades. And once wages and prices start

chasing each other higher, it's really

hard to sort of put that genie back in

the bottle. But then things started to

get worse because the world got this oil

shock from the war in the Middle East,

pushing energy costs even higher. And

they got a new government in Tokyo that

wanted to spend even more money, meaning

they wanted to issue more bonds, aka

more debt, at a time when they already

have an insanely high debt to GDP. So

now Japan is at a crossroads. They have

two options. Option number one, keep

rates at zero, keep their high levels of

debt manageable, and watch the yen get

destroyed. Okay? Watch inflation eat the

retirees savings. Basically, watch a

country of savers get poorer every

single month. That option could

eventually lead to a revolution. So, you

have option two, increase interest rates

to save the yen. Now picking option two

means that 200% of debt to GDP that

starts acrewing real interest. The bond

market that's been asleep for 30 years

starts to wake up. The Bank of Japan,

remember, owns half of those bonds. So

they'll start bleeding losses on their

own balance sheet. They need to start

paying interest on their very high

levels of debt. Now there's no third

option where everything stays the same

way that it was before. So the option is

save the currency or save the bond

market. Okay, choose one. Now what's

interesting though is that Japan

actually tried an option three where

they increased their interest rates just

a little and they intervened a lot and

they got the worst of both worlds. The

yen started going down and bond yields

started going way up. So both markets,

their money and their bond market broke

at the same time. Let me show you what

that breakage sort of looks like. First,

I just want to say that this section is

going to get pretty complicated, so

stick with me because at the end of it,

it'll make a lot more sense. But let me

start with their money breaking, the

yen. As I'm making this video, the yen

is trading at about 160ish yen per

dollar, which is also the lowest level

that it's been against the dollar in

about 40 years. And the last time this

was happening, Ronald Reagan was

president and Nintendo had just come

out. Banks like JP Morgan are saying

that 164 yen per dollar is kind of like

a magic line in the sand where Japan

will supposedly not allow the yen to

fall past. As of today, we are very

close to that line and depending on when

you're watching this video, it could

have already crossed it. So, that's how

their money is breaking. But now, let's

look at how their bond market's

breaking. In 2022, Japan's 10-year

government bond paid just a quarter of

1%. Very small amount. Today, it pays

about 2.7%,

which is more than 10 times higher in

just 4 years. The 30-year bond is at

about 4%. And I know that those numbers

seem small compared to US interest

rates, but remember, this is a country

with over 200% debt to GDP. Every one of

these percentage points applied to a

debt of this size is a huge amount of

money in interest. But Japan also has a

weird paradox that's happening. Last

week, two things happened in Japan on

the same day. The first thing that

happened was inflation came in at 1.6%.

Which is good. It's below the Bank of

Japan's 2% goal. That happened for the

fifth month in a row. The second thing

that happened was the Japanese stock

market went down over 2%. Which is bad.

That was about 30 trillion yen lost. And

bond interest rates went up too, which

is also bad. This is the opposite of

what should be happening. Normally, when

inflation comes in low, bonds typically

do well cuz low inflation means the

central banks can relax. That's how it

works in the US. But in Japan right now,

inflation

looks like it's under control. It's

under target, but interest rates are

still going higher, which is not good.

Why? It's because Japan's bond market is

not trading on inflation anymore. It's

trading on a scarier question, which is

who's going to be buying all these

bonds, right? The government wants to

spend more, but the Bank of Japan, which

is a buyer of last resort that owns half

the market, they're trying to spend

less. investors are looking at the

supply and they're demanding to be paid

more to hold it, right? Because it's

more risky for them. They're like, "I

don't care what inflation does. Pay me

more interest." This is why the world's

investors are betting against Japan with

huge amounts of leverage. Check this

out. You're looking at 18 years of hedge

fund bets on the Japanese yen. This data

comes from the CFTC, which is publishing

actual disclosed positions by big hedge

funds. What this chart is showing us is

that when this line is above zero, hedge

funds are betting on the yen. They think

the yen will go up. When it's below

zero, they're betting against it. So,

the lower this line goes, the more money

is shorting the yen. Now, look at where

we are today. We're all the way down

here, right? This is around -150,000

contracts. In dollar terms, it's roughly

11 12 billion of bets against the yen,

but that's only what's visible. Most

currency trading happens in private

deals between banks that never show up

in this data. So, I can't show you that

cuz we don't have it, but this might be

just the tip of the iceberg. So, what

they're all doing right now is they're

borrowing yen. They're shorting the yen

because they're assuming Japan is

helpless to stop this. Now, the Bank of

Japan sees all this, and what are they

doing about it? Well, they tried to

fight it. In April and May, Japan's

Ministry of Finance spent $73 billion

buying their own currency, the yen. And

it worked for about 3 weeks. The yen

went up and then it went back down

again. Then in June, the Bank of Japan

increased rates to 1% and the yen went

down. Anyway, one economist said that

doing this while your economy still runs

on cheap money is like tapping the

brakes while keeping your other foot on

the gas. You're going to burn through

your brake pads and the car is not going

to stop. Now, Japan still has enough

money for 15 more interventions of this

size, but they're not using it. They're

not using it because Japan has figured

out you cannot defend your own currency

by buying it. every intervention is just

going to feed the short sellers more

fuel. So if Japan wants the yen to

actually go up and strengthen, it does

not need to buy the yen. All it has to

do is change where the money lives. And

that is why Japan's policy is for its

wealth to return to its homeland. So,

there's an official word in economics

for money returning back home, and it's

actually called repatriation. And here's

how we know it's happening. Because for

the first time in a generation, Japanese

bonds are actually paying something. The

30-year bond pays about 4% right now.

Which means for the first time in 30

years, a Japanese pension fund or

insurance company can now look at a

Japanese government bond and say, "Hey,

maybe we should put our cash here

instead where we get a guaranteed yield

at home in my own currency with no

exchange rate risk. It's making sense

for Japanese money to return back home

for the first time since the 80s." Now,

on July 10th, the Japanese government

made an announcement about this. The

finance minister of Japan said she wants

the GPIF,

that's the government pension investment

fund, which is the biggest pension fund

in the world, worth $1.8 trillion, to

start moving its investments away from

foreign assets and into Japanese assets.

Now, that fund holds roughly $230

billion of US treasuries alone, plus

hundreds of billions of dollars in US

stocks. The government is like, "Okay,

guys, time to bring it all back." And

what happened then was the yen went up

and their bond interest rates went down.

The biggest drop in a month. That's what

they want. So now every Japanese

insurance company and every bank and

every institution, they're watching what

the government told the GPIF to do. And

now they know that this is a sign of

what is coming, right? We can already

see them start to move their money.

Check this out. This is data from

Bloomberg showing Japanese life and

casualty insurance companies purchases

of long-term Japanese government bonds.

For most of the last two years, you can

see that these bars were negative.

Insurers were what's called net sellers

of Japanese bonds. But look at the far

right of the chart. The last bar shows

the biggest buying in 3 years. The

insurance companies just flipped from

being sellers to being the biggest

buyers in years. Now hold on. Where are

they getting the money to buy their own

treasuries then? And the answer is US

treasuries. By selling US treasuries,

they get dollars which they convert to

yen, their yen gets a buyer and their

bonds get a buyer. And the US assets,

they get a seller. And this is where it

becomes a US problem. Here is how all of

this is connected back to the US.

Remember, for decades, Japan was the

most reliable customer at US bond

auctions. They were the number one

foreign holder of US debt. And now our

biggest customer is not buying our debt.

In fact, they might start selling a lot

of it. Fewer buyers means the US has to

do what? To get new customers. The US

has to offer higher interest rates to

attract new buyers. That is partially

why interest rates are expected to go up

here in the US. And if you look at the

most important US Treasury bond, the

10-year bond, which is what sets our

borrowing costs as consumers to buy

things like 30-year mortgages, you'll

see that right now it's paying about

4.7%.

Which is close to all-time highs. That's

not good. Part of why that's happening

is because a major foreign buyer of our

debt is stepping back. So, even if you

might not own any Japanese assets, your

mortgage rate is partially set thanks to

Japan. Now, hold on. Doesn't this sort

of upset the US? I think it might.

That's maybe why Japan wants to build

its own intelligence agency for the

first time since World War II. Maybe

that's nothing. Maybe that's something.

Maybe this is why we're seeing all these

cryptic tweets about apologizing to the

West, right? Okay. If you're in Japan,

there's a problem with your plan because

Japan does not control what investors do

with their money. So, what if the money

doesn't want to come home? What if

foreign buyers or borrowers just keep

rolling their cheap yen loans forever?

Article 589 is how they'll make sure

their wealth comes back home. Now, I'm

not going to go too ind depth with

article 589 cuz there's no confirmed

policy. There was no official statement

other than that anonymous account, so we

should be skeptical. But article 589

basically says a lender cannot charge

interest on a loan unless the interest

was agreed to, which essentially allows

Japan to have a little more control over

where their money is going. So that's

one way they're forcing the wealth back

home. The second way they're doing it is

through incentives. And that is why on

July 20th, Japan passed something that's

being called their version of America's

Clarity Act, which means crypto in Japan

is now legally recognized as a financial

asset, which also means Japanese banks

can now hold those assets. Now, the

crypto bros are like, "Yeah, XRP and

Bitcoin's going to the moon, but why

Japan is actually adopting crypto has

nothing to do with trying to pump

crypto. It has everything to do with

incentivizing capital to return back

home. And even more importantly, it's a

system for them to buy back their own

bonds. For example, one of the ways

they've incentivized crypto is proposing

tax cuts from 55%

where Japanese crypto wealth stayed

offshore down to 20% where it might come

home onto their regulated exchanges in

yen in their tax system. Right? They're

giving those people an incentive to

return the wealth back to Japan. But

even more importantly, they are using

crypto as a means to offload their debt

onto the world and their own companies.

How we know this is because here in the

US, stable coin companies have become

some of the biggest buyers of US

government debt. And Tether is an

example of this, right? It's a company

that is the biggest corporate owner of

US treasuries because every single

digital dollar that they issue has to be

backed by something safe one to one like

US treasury bonds. So Japan is looking

at this US model and they're like yeah

we got to get in on this too, right? So,

this will allow Japan's stable coins to

be backed by their own government bonds,

which means now they'll have a buyer of

their huge amount of debt. I hope all

that makes sense. If it doesn't, press

the J button on your keyboard and watch

it again. But, okay, let's say that all

of this is true and this works exactly

like Japan wants it to. The yen starts

going up, right? Proving all the short

sellers wrong. What happens to the US?

All else being equal, here's what

happened to the markets when the yen got

stronger throughout history. Check this

out. You're looking at 30 years of the

yen versus the dollar. The gray bars are

official US recessions. And every red

part here is when the yen got stronger

relative to the US dollar. Here's what

happened. In 1998,

the yen went up 15% in just 3 days. What

was happening at the time was a collapse

of long-term capital management, which

was a hedge fund blow up so big the

Federal Reserve had to organize a

rescue. And at the center of that

problem was an earlier version of that

carry trade that was unwinding. Then in

2008, the yen goes higher all year long.

That's the global financial crisis.

Every borrowed yen bet in the world was

starting to unwind. Then 2011, record

yen high peak global fear. 2016 Brexit,

same thing. March 2020, COVID crash. Yen

goes up while everything else in the

world was being sold. Then August 2024,

the Bank of Japan increased interest

rates by just a little, a quarter of 1%.

The yen went up and a part of that carry

trade started to unwind. And in one day,

Japan's stock market went down 12%. the

worst day since 1987 and the US stock

market went down 3%.

Millions of people here in the US

watched their portfolios lose money that

day with no idea what was happening.

Nothing happened in the US, but

something was happening in Japan. So

basically what we know is that every

single time the yen got stronger really

fast, it meant that markets somewhere in

the world were starting to break. Now,

to be fair, the yen going up is not what

causes these things to happen. It's

usually the other way around. A crisis

happens, the borrowed yen trade unwinds,

everyone buys back yen, and the yen goes

up really fast as everything else goes

down. So, the yen is kind of like a

proxy or a measure for how much global

leverage there is, how much money

borrowing is going on. Now, today,

obviously, the yen is not going up. It's

a very weak money. It's having a hard

time going up partially thanks to the

world betting against them. But what

makes this time so different is that in

1998, in 2008, in 2020, 2024, the yen

going up was not intentional. But this

time, a stronger yen is the plan. So all

the things we talked about in this video

like the repatriation, the rate

increases, article 589 and all these

rumors, all of that looks like that the

goal of Japanese policy right now is to

make this line go up, to make the yen

stronger. What happens next is anybody's

guess. If you're interested in seeing

how I'm preparing and more of my

thoughts about the economy, those videos

live in the premium member section where

you'll also get access to my main videos

earlier. If that is valuable to you, the

link is down below. And don't forget to

deposit $100 with Weeble to grab your 12

free stocks. Thank you for watching this

very long and complicated video. I hope

you have a wonderful rest of your day.

Smash the like button, subscribe if you

haven't already. I'd love to see you

back here next time. Take care. Sh.