The Japanese Yen has lost about 20% of its value compared to the dollar in the last 6 months. The 10 year Japanese Government Bonds (JGBs) are paying 0.61% per year as of Apr 14. This is the ultimate in return-free-risk. You lose about as much each week on the Yen going down as you gain in interest for the whole year. After 10 years you get a total of 6.27%. But if you bought these 6 months ago and the yen did not drop any more in the next 9.5 years, you would still be down 14% in real terms. The Japanese central bank has announced they will double the monetary base over the next 2 years. The Yen will drop further in value, much more than 6.27% over the next 9.5 years, I promise. :-) It is foolish to buy or hold JGBs at this point. As investors realize this they will want to get out of JGBs. But the faster they get out, the faster the central bank will have to print money. The faster the central bank prints money, the faster investors will want to get out of JGBs. We have probably already entered the death spiral and just don't realize it yet. This is explained in my Hyperinflation FAQ and shown in my Hyperinflation Simulation. Japan seems about to have hyperinflation.
After Japan gets hyperinflation, the myth that advanced Democratic countries don't get hyperinflation will be destroyed. After people realize that the Dollar, Pound, and Euro (*) are not safe from hyperinflation, people will want to get out of bonds in these countries as well. There will be huge monetization in these countries and then hyperinflation. Once these 4 currencies have fallen, others will too, since these make up about 95% of the central bank reserves backing other currencies. Faith in paper money in general will be shattered. Japan will be the first Domino to fall, but not the last.
think that this hyperinflation will happen far faster than others. In
other hyperinflations people did not understand what was going on,
sometimes for years. When prices are shooting up people will be interested in hyperinflation. With blogs, youtube, facebook, etc. it will not be
long before people understand. Once people understand, the
currency dies. So instead of taking 3 years, it might go from start to finish in only 3 months.
The big question is how soon does hyperinflation start in Japan. Given the Yen's drop on the international markets, the Japanese prices seen for imports are already going up much faster than the 26% per year that counts as hyperinflation. My guess is the bond panic will be obvious within a few months and the rapid price increases come soon after. The central bank is aiming for 2% inflation per year, but I bet they get more than 2% per month, which is 26% per year and counts as hyperinflation. The high inflation in imports and the higher prices exports can fetch will both drive up local prices in Yen. I think Japan will get a month with 2% inflation within the next 6 months. Things could just snap some weekend.
We live in interesting times.
(*) The Euro is different than a normal single country currency, so hyperinflation may be more or less likely than normal.