{"id":31968,"date":"2026-07-26T11:06:28","date_gmt":"2026-07-26T09:06:28","guid":{"rendered":"https:\/\/michelsanti.fr\/?p=31968"},"modified":"2026-07-26T11:06:28","modified_gmt":"2026-07-26T09:06:28","slug":"japan-saved-its-stock-market-and-sacrificed-its-yen","status":"publish","type":"post","link":"https:\/\/michelsanti.fr\/en\/moral-hazard\/japan-saved-its-stock-market-and-sacrificed-its-yen","title":{"rendered":"Japan Saved Its Stock Market \u2014 and Sacrificed its Yen"},"content":{"rendered":"

\"\"<\/p>\n

 <\/p>\n

By protecting asset prices for years, the Bank of Japan ultimately left its currency exposed. A yen at a forty-year low, bonds in freefall and a stock market still hovering near record highs reveal less a contradiction than a distributional choice. Japanese households must now pay for the insurance policy extended to the markets.<\/em><\/p>\n

 <\/p>\n

A few days ago, I wrote here that the Bank of Japan had invented a comprehensive insurance policy: the \u201cUchida put,\u201d an implicit promise that the institution would suspend its monetary tightening whenever financial markets began to falter. I saw it as the most accomplished expression of the moral hazard infecting contemporary monetary policy. The events of the past few days have provided a brutal demonstration: the insurer is discovering that its policy has turned against it\u2014and that Japanese households are being made to pay the premium.<\/p>\n

The entire picture can be captured in a single image. Despite its recent correction, the Nikkei remains at historically elevated levels, at around 65,000 points, supported in particular by the legacy of years of ETF purchases that made the central bank one of the largest holders of Japanese equities. At the same time, the dollar is approaching 164 yen, a level not seen since November 1986\u2014another era, when Japan made the United States tremble and international agreements were signed, though then to weaken its currency rather than support it. A stock market near its highs and a currency in freefall: this is the Uchida put in all its glory, being exercised before our eyes, protecting asset holders while impoverishing everyone who holds yen.<\/p>\n

Faced with this haemorrhage, Tokyo is reciting its familiar script. Finance Minister Satsuki Katayama is promising \u201cappropriate and decisive action, without hesitation\u201d\u2014a ritual formula that no longer deceives anyone after the \u00a511.7 trillion, or roughly $72 billion, deployed this spring produced an effect that evaporated within weeks.<\/p>\n

Now the \u201cwhale\u201d is being brandished as the ultimate threat: the Government Pension Investment Fund, or GPIF, with \u00a5293.6 trillion in assets, around half of which is invested overseas. Its holdings of US Treasury securities alone, estimated at $232 billion, amount to more than three times the Bank of Japan\u2019s failed intervention this spring. The government insists that there is no question of radically altering the fund\u2019s allocation and that, legally, the GPIF must act solely in the interests of pensioners. Yet if economic policy continues to fail to convince the markets, the state may ultimately resort to its citizens\u2019 retirement savings as a possible last line of support for both the yen and Japanese bonds.<\/p>\n

This is not yet a requisition. It is, however, evidence of rapidly shrinking room for manoeuvre. Japan\u2019s leaders appear increasingly at a loss in the face of the turbulence taking shape. The problem is structural. Japan was supposedly forced to choose between defending its currency and defending its bond market. It has somehow managed to fail on both fronts. Meanwhile, the Bank of Japan is trapped\u2014not by questions of solvency, since a central bank cannot go bankrupt in the conventional sense, but by the financial and political consequences of its own balance sheet.<\/p>\n

It holds \u00a5518 trillion in government bonds, nearly half the entire Japanese sovereign debt market. Every rate increase raises the interest paid on bank reserves; every rise in yields deepens the unrealised losses on its portfolio. This is how the trap closes. The yen\u2019s fall demands higher interest rates. Higher rates drive down bond prices and threaten the stock market. As soon as markets begin to falter, the Uchida promise leads investors to believe that the Bank will stop tightening. Yen weakness therefore generates precisely the financial instability that prevents the Bank from combating it.<\/p>\n

Speculation against the Japanese currency is consequently not an irrational attack. It is the logical behaviour produced by the central bank\u2019s own reaction function.<\/p>\n

Moral hazard has finally caught up with its author.<\/strong><\/p>\n

This monetary debacle is now colliding with geopolitics. Before the war in Iran, Japan bought 94% of its oil from the Middle East, with 93% of those cargoes passing through the Strait of Hormuz. Tokyo says it has secured alternative supplies through March 2028 and holds reserves equivalent to 200 days of consumption. The immediate risk is therefore not that Japan\u2019s petrol pumps will run dry, but that the country will pay vastly more for energy that must now be sourced from much farther afield.<\/p>\n

One figure alone captures the violence of the shock: in June, Japan imported 13.7% less oil by volume while paying 59% more in yen terms. Buying less while paying far more is what happens when expensive oil collides with a weak currency. Importing energy priced in dollars with a currency at a forty-year low quite simply means importing inflation.<\/p>\n

That inflation is already visible in electricity bills, food prices and the cost of rice, which has more than doubled since 2024. A generation that had almost forgotten inflation is rediscovering it just as its purchasing power had finally begun to recover. Real wages have now risen for five consecutive months, while annual wage settlements have exceeded 5% for the third year running. Yet this belated catch-up is already being swallowed by the cost of imports before it has even had time to produce its effects.<\/p>\n

Then comes the political dimension, which the markets understand perfectly well. Sanae Takaichi\u2019s government has struggled to dispel suspicions that it is pressuring the Bank of Japan to postpone further rate increases. The paradox is that Takaichi lays claim to Shinzo Abe\u2019s legacy without possessing the political strength that underpinned Abenomics\u2014a coherent doctrine with a clear hierarchy of priorities. In Japan today, no one knows whether the priority is the yen, the national debt or the Nikkei.<\/p>\n

A central bank whose independence is in doubt, a currency whose value is in doubt, and a debt whose sustainability is in doubt?<\/p>\n

Make no mistake: this is not merely a Japanese crisis. It is a mirror held up to every advanced economy that has allowed its central bank to absorb an ever-growing share of the bonds, assets and risks that markets no longer wished to bear. The lesson from Tokyo extends far beyond Tokyo.<\/p>\n

When a central bank becomes the market, it cannot withdraw without triggering an extremely painful repricing. When a central bank provides insurance perceived as unlimited, it eventually becomes the casualty itself.<\/p>\n

Every put is exercised eventually. This one is being exercised right now\u2014against its writer and at the expense of those it purported to protect.<\/p>\n","protected":false},"excerpt":{"rendered":"

  By protecting asset prices for years, the Bank of Japan ultimately left its currency exposed. A yen at a forty-year low, bonds in freefall and a stock market still hovering near record highs reveal less a contradiction than a distributional choice. Japanese households must now pay for the insurance policy extended to the markets.…<\/p>\n","protected":false},"author":4,"featured_media":31972,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"give_campaign_id":0,"_exactmetrics_skip_tracking":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_wpcom_ai_launchpad_first_post":false,"mc4wp_mailchimp_campaign":[],"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"{title}\n\n{excerpt}\n\n{url}","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false,"jetpack_post_was_ever_published":false},"categories":[648943414],"tags":[],"class_list":["post-31968","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-moral-hazard"],"yoast_head":"\nJapan Saved Its Stock Market \u2014 and Sacrificed its Yen - Michel Santi<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/michelsanti.fr\/en\/moral-hazard\/japan-saved-its-stock-market-and-sacrificed-its-yen\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Japan Saved Its Stock Market \u2014 and Sacrificed its Yen - Michel Santi\" \/>\n<meta property=\"og:description\" content=\"  By protecting asset prices for years, the Bank of Japan ultimately left its currency exposed. 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After decades of stagnation, the Japanese economy is\u2026","rel":"","context":"In "Japan"","block_context":{"text":"Japan","link":"https:\/\/michelsanti.fr\/en\/category\/japan"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/10\/Nikkei.jpg?fit=1200%2C1136&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/10\/Nikkei.jpg?fit=1200%2C1136&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/10\/Nikkei.jpg?fit=1200%2C1136&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/10\/Nikkei.jpg?fit=1200%2C1136&ssl=1&resize=700%2C400 2x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/10\/Nikkei.jpg?fit=1200%2C1136&ssl=1&resize=1050%2C600 3x"},"classes":[]},{"id":22615,"url":"https:\/\/michelsanti.fr\/en\/japan\/shinzo-abe-killed-for-being-a-keynesian","url_meta":{"origin":31968,"position":1},"title":"Shinzo Abe: killed for being a Keynesian","author":"Michel Santi","date":"July 10, 2022","format":false,"excerpt":"\u00a0 He lifted his country out of the pacifist dogma adopted following World War Two. He contributed massively to Japan\u2019s transformation into a country careful with its geopolitical and strategic interests so it could it take up the seat it deserved at the table of global security operations. He was\u2026","rel":"","context":"In "Japan"","block_context":{"text":"Japan","link":"https:\/\/michelsanti.fr\/en\/category\/japan"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2022\/07\/Shinzo-Abe.webp?fit=1200%2C800&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2022\/07\/Shinzo-Abe.webp?fit=1200%2C800&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2022\/07\/Shinzo-Abe.webp?fit=1200%2C800&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2022\/07\/Shinzo-Abe.webp?fit=1200%2C800&ssl=1&resize=700%2C400 2x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2022\/07\/Shinzo-Abe.webp?fit=1200%2C800&ssl=1&resize=1050%2C600 3x"},"classes":[]},{"id":31953,"url":"https:\/\/michelsanti.fr\/en\/weak-yen\/boj","url_meta":{"origin":31968,"position":2},"title":"The Uchida put","author":"Michel Santi","date":"July 24, 2026","format":false,"excerpt":"By promising in August 2024 not to raise rates during turbulent markets, the Bank of Japan offered speculators free insurance, which they have been exercising relentlessly ever since. The weak yen has its reasons\u2014rate differentials, an oil shock, fiscal doubts\u2014but none explain the sheer scale of the positions. Ten days\u2026","rel":"","context":"In "Weak yen"","block_context":{"text":"Weak yen","link":"https:\/\/michelsanti.fr\/en\/category\/weak-yen"},"img":{"alt_text":"","src":"https:\/\/michelsanti.fr\/wp-content\/uploads\/2026\/07\/le-drapeau-national-japonais-hisse-au-sommet-du-batiment-du-siege-de-la-banque-du-japon-a-tokyo-japo-1764574949_e414ba864d296f814ba864d29ec14bv_.avif","width":350,"height":200,"srcset":"https:\/\/michelsanti.fr\/wp-content\/uploads\/2026\/07\/le-drapeau-national-japonais-hisse-au-sommet-du-batiment-du-siege-de-la-banque-du-japon-a-tokyo-japo-1764574949_e414ba864d296f814ba864d29ec14bv_.avif 1x, https:\/\/michelsanti.fr\/wp-content\/uploads\/2026\/07\/le-drapeau-national-japonais-hisse-au-sommet-du-batiment-du-siege-de-la-banque-du-japon-a-tokyo-japo-1764574949_e414ba864d296f814ba864d29ec14bv_.avif 1.5x, https:\/\/michelsanti.fr\/wp-content\/uploads\/2026\/07\/le-drapeau-national-japonais-hisse-au-sommet-du-batiment-du-siege-de-la-banque-du-japon-a-tokyo-japo-1764574949_e414ba864d296f814ba864d29ec14bv_.avif 2x"},"classes":[]},{"id":13657,"url":"https:\/\/michelsanti.fr\/en\/central-banks\/you-dont-know-it-but-youre-doing-very-well","url_meta":{"origin":31968,"position":3},"title":"You don\u2019t know it but you\u2019re doing very well !","author":"Michel Santi","date":"November 25, 2015","format":false,"excerpt":"The Venezuelan stock market has rocketed up by 200% this year and finds itself sitting atop global stock markets in terms of this exceptional performance. Is this to say that Venezuela is enjoying exceptional growth and that its positive repercussions are being felt by its people? Far from it in\u2026","rel":"","context":"In "capitalism"","block_context":{"text":"capitalism","link":"https:\/\/michelsanti.fr\/en\/category\/capitalism"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":19796,"url":"https:\/\/michelsanti.fr\/en\/japan\/if-only-we-were-all-japanese-2","url_meta":{"origin":31968,"position":4},"title":"If only we were all Japanese!","author":"Michel Santi","date":"December 12, 2019","format":false,"excerpt":"\u00a0 The economists and bankers of my generation have had the habit of entertaining themselves by dividing the world into four types of economies: developed, emerging, Argentina and Japan. It is worth, however, updating this somewhat simplistic and caricatural joke by removing Japan from the list of economic aberrations. Albeit\u2026","rel":"","context":"In "Japan"","block_context":{"text":"Japan","link":"https:\/\/michelsanti.fr\/en\/category\/japan"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2019\/12\/Shinzo-Abe.jpg?fit=729%2C510&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2019\/12\/Shinzo-Abe.jpg?fit=729%2C510&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2019\/12\/Shinzo-Abe.jpg?fit=729%2C510&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2019\/12\/Shinzo-Abe.jpg?fit=729%2C510&ssl=1&resize=700%2C400 2x"},"classes":[]},{"id":19475,"url":"https:\/\/michelsanti.fr\/en\/modern-monetary-theory\/the-monetary-theory-mmt-that-has-nothing-modern-about-it","url_meta":{"origin":31968,"position":5},"title":"The Monetary Theory (MMT) that has nothing Modern about it","author":"Michel Santi","date":"June 11, 2019","format":false,"excerpt":"\u00a0 I\u2019ve been writing it since 2010. I\u2019ve released several books and hundreds of articles meticulously defending the position. Sovereign States \u2013 that being those who issue their own currency independently of any indexation \u2013 should learn to love, or at the very least live with, their public deficits. Because\u2026","rel":"","context":"In "deficits"","block_context":{"text":"deficits","link":"https:\/\/michelsanti.fr\/category\/deficits-2"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2019\/06\/keynes.jpg?fit=395%2C220&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/posts\/31968","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/comments?post=31968"}],"version-history":[{"count":3,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/posts\/31968\/revisions"}],"predecessor-version":[{"id":31975,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/posts\/31968\/revisions\/31975"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/media\/31972"}],"wp:attachment":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/media?parent=31968"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/categories?post=31968"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/tags?post=31968"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}