Offshore

EndGame Macro
🇯🇵 Japan May Be the First Domino And The U.S. Should Pay Attention

Japan is quietly stepping out of the role it played for thirty years: the world’s source of near free money. When Japanese rates were pinned at zero, their pension funds, insurers, and banks had no choice but to send money abroad. That steady flow kept global borrowing costs lower than they should’ve been, especially in the U.S.

Now that Japan finally pays a real return at home, that flow slows. And the reason yields are rising isn’t because Japan is booming, it’s because inflation lingered, the currency weakened, deficits grew, and the market is finally pricing the risks of a country that can’t hide behind deflation anymore.

Why This Matters for the U.S.

For the U.S., this shift removes a quiet safety net. If Japanese money stays in Japan, America has to absorb more of its own debt issuance. That makes long term rates stickier, financial conditions tighter, and mistakes harder to hide. You already see the Fed adjusting: ending QT early, softening Basel rules so banks don’t retreat from Treasuries, and checking the repo plumbing to make sure nothing snaps when liquidity gets thin.

So Japan doesn’t create a crisis but it reduces the room for error. In a world where Washington is issuing record debt, losing a reliable buyer like Japan matters.

The Tariff Angle And the Smoot-Hawley Echo

Now layer tariffs on top of this. Tariffs don’t automatically cause a depression, but they do raise costs, reduce trade, and strain already fragile supply chains. In the 1930s, Smoot-Hawley didn’t create the Great Depression but it made a bad downturn worse. Countries retaliated, trade collapsed, and the world’s economic contraction deepened. It accelerated the pain because everyone was tightening policy at the same time, fighting each other instead of stabilizing demand.

Today’s setup rhymes uncomfortably with that moment. Growth is already soft in Europe and China. The U.S. consumer is slowing. Japan, once a deflation shock absorber is no longer exporting cheap capital. If tariffs escalate globally, they could choke off trade right as the financial system is losing its old supports. That combination is exactly how you turn a normal slowdown into something sharper.

Could Japan Ever Go Back to Zero?

It can, but only for the wrong reasons. Japan would be pushed back into its cheap money factory role if the world were falling into a global deflationary slump, collapsing demand, falling prices, trade retreating, unemployment rising everywhere. In that world, the BOJ would be forced back into heavy bond buying just to keep the system from seizing. Yields would crash, but not because anything was healthy, because everything was shrinking.

And the U.S. would feel it immediately…plunging Treasury yields, a return of QE, a stronger dollar, and the kind of financial stress that comes when the world suddenly gets scared of its own shadow.

The Real Message

Japan’s bond market is signaling a regime shift. Tariffs are adding friction to a system already running tight. Put together, they tell you the global economy is losing its old shock absorbers and the U.S. can’t rely on the same easy backdrop it had for the last 20 years. This isn’t panic, but it’s a clear sign that the world is entering a more fragile, less forgiving phase.
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