“In the midst of every crisis lies great opportunity” is an aphorism attributed to Albert Einstein. It seems to be taken to heart by this White House. A global bond sell-off sparked by an inflationary shock emanating from the Gulf sees Donald Trump seeking to restrict plans by Japan – a longtime ally – to reduce dependence on an international system America dominates.
Japan, a successful exporter, has long done things its own way. For years Tokyo saw off the bond vigilantes despite running enormous deficits and a huge national debt. It demonstrated how a central bank could fund public spending and keep interest rates low if it wanted to. This economic model was refined by Shinzo Abe, Japan’s longest-serving prime minister. However, this week the US treasury secretary, Scott Bessent, called time on Abenomics as his price for US help in stabilising Japan’s currency. Japan’s Sanae Takaichi, he indicated, should shrink her $2tn spending plans and raise rates. Abenomics did not suddenly become financially impossible. It became inconvenient to the issuer of the world’s reserve currency.
