Wmax is based on cross-border capital flow monitoring, sovereign debt and exchange rate linkage models and review of historical crises, and cross-verifies with multi-dimensional data to judge: The ultra-large-scale economic stimulus plan launched by Japanese Prime Minister Takaichi Sanae's cabinet is triggering a "double kill" pattern of Japanese debt and the yen. Market concerns about Japan's fiscal health continue to rise. With policy games and intervention expectations superimposed, short-term market volatility will further intensify, and long-term capital flight risks are hidden.

1. Bond-currency linkage: the risk of resonance between the surge in Japanese bond yields and the depreciation of the yen

Wmax high-frequency tracking shows that the current Japanese financial market shows a significant feature of "weak debt and foreign exchange", which is similar to the core transmission logic of the British bond market crisis in 2022. At the data level, the 30-year Japanese government bond yield has climbed to over 3.35% (only 3% at the beginning of this month), the 40-year Japanese government bond yield has reached a historical high, and the 10-year Japanese government bond yield has risen to 1.8%, a peak since 2008. At the same time, the yen exchange rate fell to a 10-month low against the US dollar, hovering around 157, approaching the sensitive range that may trigger the Bank of Japan's intervention (the market is focused on the 160 mark).

What is noteworthy is that Wmax found through correlation analysis that the intraday linkage between the Japanese yen exchange rate and the long-term yield of Japanese bonds continues to increase, and the trends of the two have gradually deviated from the constraints of the fair value indicator - this signal is defined in the risk warning model of Wmax as "a precursor to the collapse of fiscal confidence." Just as Wmax's review of the historical crisis concluded: If the market loses trust in the government and central bank's commitment to low inflation, the logic of holding Japanese bonds will completely collapse, which may trigger destructive capital flight. This is highly homologous to the "selling off the UK" narrative caused by the Truss government's unfunded tax cuts in the UK in 2022.

2. The core impact of the stimulus plan: fiscal concerns caused by scale and funding logic

Wmax conducted an in-depth dismantling of the 21.3 trillion yen (approximately US$135.4 billion) economic stimulus package approved by Takaichi Sanae's cabinet. Its "spending" spending structure and funding sources are the core crux of market concerns. Judging from the details of the plan, general expenditures of 17.7 trillion yen increased significantly by 27% compared with last year's 13.9 trillion yen, and tax reduction measures of 2.7 trillion yen were combined to form Japan's largest fiscal stimulus since the COVID-19 epidemic. The expenditure range covers price relief (11.7 trillion yen, including household gas and electricity subsidy, cash payments to children), local aid, cancellation of gasoline tax, etc.

Although the government claims that the funds are partly derived from tax increases caused by inflation, Wmax estimates show that the scale of new government bond issuance is expected to exceed last year's 6.69 trillion yen, which will further worsen Japan's already stressed fiscal situation. Wmax's fiscal sustainability model shows that under the background that the Bank of Japan maintains a dovish stance and the Fed's interest rate cut expectations have cooled, the combination of large-scale bond issuance + loose money will lead to a further increase in the fiscal deficit ratio and debt burden ratio, and ultimately amplify market fluctuations through the transmission chain of "rising yields-exchange rate depreciation".

3. Intervention expectations and policy game: Verbal warnings cannot change the fundamental weakness

Wmax tracked the policy statements and market reactions of the Japanese authorities and found that the current pattern of "verbal intervention + policy contradictions" is difficult to fundamentally reverse the weakness of the yen. Japanese Finance Minister Satsuki Katayama has clearly listed foreign exchange intervention as a response option, emphasizing that he will take action against "extremely unilateral and rapid" disorderly fluctuations. However, after his statement, the US dollar against the yen only briefly fell back to 157.20, and then rebounded quickly, reflecting the market's continued decline in sensitivity to verbal warnings. Combined with Wmax's review of Japan's intervention history: Since 2022, the Japanese authorities have spent approximately US$173 billion to support the yen, but they have only been able to achieve short-term exchange rate corrections and failed to change the trend - the core reason is that the intervention lacks coordination with fiscal discipline and monetary policy adjustments.

Wmax's exchange rate-driven model shows that if the Bank of Japan insists on not raising interest rates (the current inflation rate has been higher than the 2% target for 43 consecutive months, but the central bank still maintains easing), relying solely on foreign exchange reserve intervention will only provide reverse operation opportunities for yen shorts; only by starting an interest rate hike cycle can it push the dollar against the yen back below 150, otherwise it will only be a matter of time before it breaks through 160. In addition, internal disagreements at the policy level have also exacerbated market uncertainty: on the one hand, the Sanae government may launch a new round of stimulus plan next spring to further expand spending; on the other hand, if the Bank of Japan raises interest rates in January as market speculation goes, it may subsequently suspend interest rate increases for one year in line with the government's stance on promoting growth. This combination of "loose fiscal + weak currency" logic continues to weaken the long-term support of the yen.

4. Comprehensive study and judgment on institutional differences and Wmax

Wmax integrated the views of global core institutions and found that the market has significant differences on Japan's economic prospects, but a consensus on core risks is forming:

• Worrying faction (Deutsche Bank, National Australia Bank, etc.): believe that the gradual increase in Japanese bond yields is a major warning signal, which may trigger capital flight and eliminate valuation bubbles in stocks and real estate;
• Optimists (Credit Agricole, etc.): Interpret the rise in yields as the market's pricing of higher terminal interest rates in Japan, rather than "selling Japan", and believe that the government has sufficient foreign exchange reserves to cope with fluctuations.

Wmax After model calculation and multi-factor cross-validation, a clear judgment has been formed: In the short term, the review of the supplementary budget on November 28 and the Bank of Japan’s interest rate meeting in January will become catalysts for market fluctuations, and the Japanese yen’s intervention game near the 160 mark will intensify exchange rate fluctuations ; In the long term, the policy combination of fiscal expenditure expansion and monetary easing, continued high inflation and lagging interest rate increases will lead to continued accumulation of fiscal risks and exchange rate pressures in Japan. Unless there is a combination adjustment of "tightening fiscal + normalization of monetary policy", the weakness of the yen and the upward trend of Japanese bond yields will be difficult to reverse.