Double-digit long-term yields would hit Japan without constant Bank of Japan bond purchases, an analyst argued, calling that implied market level evidence the country is already in a de facto debt crisis.
240% debt-to-GDP is the core driver, the analysis said: if the BoJ stopped capping yields, borrowing costs would jump, while keeping yields artificially low instead fuels yen depreciation as investors exit undercompensated assets.
Cross-country comparisons suggest Japan's 30-year yield should be at least 100 basis points above current levels, and about 300 basis points higher after excluding Japan, Greece, Italy and Spain as heavily distorted cases.
The analyst said even that understates the risk because central-bank bond buying also suppresses yields in countries including the US, UK and France, implying Japan's uncapped 'shadow' yield could plausibly exceed 10%.
A March 2020 ECB episode, when peripheral spreads surged after Christine Lagarde said the ECB was not there to close spreads, was cited as a warning that hidden debt crises can surface quickly once yield caps are questioned.