Bond Wars: Chinese Advisor Calls For Japanese Bond Dump

Tyler Durden's picture

Earlier today we casually wondered whether the US stands to lose more by supporting China or Japan in their escalating diplomatic spat, considering the threat of a US Treasury sell off is certainly not negligible, a dilemma complicated by the fact that as today's TIC data indicated both nations own almost the same amount of US paper, just over $1.1 trillion. In a stunning turn of events, it appears that China has taken our thought experiment a step further and as the Telegraph's Ambrose Evans-Pritchard reports, based on a recommendation by Jin Baisong from the Chinese Academy of International Trade (a branch of the commerce ministry) China is actively considering "using its power as Japan’s biggest creditor with $230bn (£141bn) of bonds to "impose sanctions on Japan in the most effective manner" and bring Tokyo’s festering fiscal crisis to a head." I.e., dump Japan's bonds en masse.

Should this stunning recommendation be enacted, not only would it be the first time in world history that insurmountable credit is used as a weapon of retaliation, it would mark a clear phase transition in the evolution of modern warfare: from outright military incursions, to FX wars, to trade wars, culminating with "bond wars" which could in the span of minutes cripple the entire Japanese fiscal house of cards still standing solely due to the myth that unserviceable debt can be pushed off into perpetuity (as previously discussed here).

Not needing further explanation is the reality that should China commence a wholesale Japanese bond dump, it may well lead to that long anticipated Japanese bond market collapse, as creditor after creditor proceeds to sell into a market in which the BOJ is the buyer of only resort in the best case, and into a bidless market in the worst.

The immediate outcome would be soaring inflation as the BOJ is forced to monetize debt for dear life, buying up first hundreds of billions, then trillions in the secondary market to avoid a complete rout, matched by trillions of reserves created out of thin air which may or may not be halted by the Japanese deflationary gate, and which most certainly could waterfall into the economy especially if Japanese citizens take this as an all clear signal that the Japanese economy is about to be crippled in all out economic warfare with the most dangerous such opponent, and one which just defected from the "global insolvent creditor" game of Mutual Assured Destruction.

Further complicating things is that Japan has no clear means of retaliation: it owns no Chinese bonds of its own it can dump as a containment measure. Instead, Japan is at best left with the threat of damages incurred on the Chinese economy should Japan be lost as a trading parting. It appears, however, that to China such a gambit is no longer a major concern:

Mr Jin said China can afford to sacrifice its “low-value-added” exports to Japan at a small cost. By contrast, Japan relies on Chinese demand to keep its economy afloat and stave off “irreversible” decline.


“It’s clear that China can deal a heavy blow to the Japanese economy without hurting itself too much,” he said. It is unclear whether he was speaking with the full backing of the Politburo or whether sales of Japanese debt would do much damage. The Bank of Japan could counter the move with bond purchases. Any weakening of the yen would be welcome.

Yes, but any offsetting Japanese hyperinflation would not, which is precisely what would happen if after 30+ years of dormancy the Japanese bond vigilantes were woken up by none other than a cuddly Panda bear with very murderous intentions.

Ironically, this terminal bond war escalation would also mean that Japan's last ditch alternative is to threaten the US with dumping America's bonds in turn if the US i) does not step up on behalf of Japan and ii) if Japan is forced to promptly convert debt from one denomination into another. The fallout effect would be most dramatic.

It is unclear if China will proceed with this "scorched bond" step: should this happen there is likely no turning back as it would force a market test of the entire developed world. And as our readers know all too well, the entire developed world is insolvent, and the only reason why it has perpetuated the illustion that all is well, is because being a closed system, nobody has the incentive to defect. Until now that is, when suddenly over a piece of rock in the East China Sea, China may find itself pulling the pin on the global debt grenade.

And even if this is not the final denouement, the market appears to already be pricing in several not much more favorable outcomes:

Markets are already starting to price in an arms race in Asia. Shares of China’s North Navigation Control Technology, which makes missile systems, have jumped 30pc in recent days.


China is becoming self-sufficient in defence. It was the world’s biggest net importer of weapons six years ago. It fell to fourth place last year.


Japan is at the other extreme. An official report this year – “A Strategy for Survival” – said Japan’s spending on its “Self-Defence Force” had shrunk by 4pc in 10 years. It called for “urgent” action to rebuild the country’s military.

One thing here is certain: Japan picked on the wrong country when two weeks ago it "purchased" the disputed Senkaku Islands. If it thought that China would just forgive and forget with a wink, it was dead wrong.

It now has several two options: undo all that has happened in the past fortnight, in the process suffering tremendous diplomatic humiliation, leaving Senkaku in the "no man's land" where they belong, or push on, and suffer the consequences. And the consequences for the country represented by the question market in the chart below, would be tragically severe, as would they for the entire "developed", insolvent and daisy-chained world.

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Sutton's picture

Doesn't matter.  Ben will buy them.  Yawn.

ACP's picture

Chuckle, after yawn.

Mr Lennon Hendrix's picture

Cry, after chuckle, after yawn....

redpill's picture

Take a shot of cheapest hot sake I can find, after cry, after chuckle, after yawn....

e-man's picture

I like that last chart...all lined up like little dominoes.

nope-1004's picture

You used to post relative, on topic shit Michael.  Now you blather like GZG.  Are you going nuts or something?


Michael's picture

The choir pretty much knows all this shit already. Some people can walk and chew gum at the same time.

zaphod's picture

This just shows how stupid the Chinese government is and how everyone saying they have some sort of master plan over generations is just nonsense.


China has to keep incremental buying of Japanese and US debt to prevent their currency from increasing. This is not mean keeping the same number of bonds, but constantly increasing their holding. Stopping this (or dumping) will cause the yuan to rise until trade is balanced. This would in turn destroy China.


It is also why you never run the merchantile trade system against fiat paper money. China will learn very soon....

malikai's picture

Are you high? Did you even read the article?

Also, these power handovers are so fun. Remember when Bush got in office and there was that little incident with the spy plane midair?

Solarman's picture

Did you understand him?  Japan simply says those bonds are null and void, China must buy bonds elsewhere or their currency rises.  Japanese leaders call their very obediant and smart and determined people together and say we need to go on a war footing to survive.  Japan goes nuclear, and rebuilds their military capability, and sacrafices to clear their debt..



sullymandias's picture

Right, Japan is going to openly default on their bonds?

BigT4451's picture

Zaphod, I think you have a point.

I have also wondered if global trade imbalances are caused by China manipulating their currency by purchasing foreign debt (currency).  That is why their foreign exchange reserves have become so massive in the first place.

By selling those same currencies all at once it would put tremendous pressure on the Yuan and effectively wipe out the labor cost advantages that have fueled their growth over the past decade.  I would think if they dumped the FX all at one time, the move would be even more dramatic, and kill their export market as their goods become tremendously more expensive in a short period of time.

I have also wondered if part of our QE was really a defacto trade war with China to improve American competitveness.  So far China has not let their currency slide enough to make a difference, but if they would dump all of a currency like that, they would effectively lose the currency war.

Now, I have never fully believed what I just wrote, but I have had those thoughts.  Sounds very similar to your hypothesis.

sullymandias's picture

There are other things in life for a nation than exporting goods to other nations. I'm afraid that kind of "global marketplace" ideology is fast becoming obsolete.

BlueCollaredOne's picture

I've learned from a young age to consider my source, conaidering i watched 9/11 from my high school classroom.

That being said, pull your shit together man. You can be a individual that stears other minds to seek the truth, but lately you come across glenn beckesque

Cast Iron Skillet's picture

if you watched 9/11 from your high school classroom, you're still at a young age (unless you were the teacher).

awakening's picture

I'd hope that poster is at an young age, enlightened individuals in this age group are, in my experience, few and far between.

BlueCollaredOne's picture

Triple post


A Nanny Moose's picture

Worry not...Japan shall fall into it's own footprint

bank guy in Brussels's picture

Obviously the Japanese elites started this stupid arrogance over islands near to China, because the US told them to do it ... they wouldn't have dared without US backing

The Japanese elites accept constant humiliation at the hands of Americans (rape of Japanese by US military personnel, bases in Japan which Japanese hate)

Japan's elites rolled over in the 1985 Plaza Accord extortion by America, which directly led to currency imbalance, internal huge bubble, Japan's crash four years later, and the 'lost decades' since then

Now Japan's elites, betraying Japan's people, are rolling over in 2012 in another American game:

- inducing China to become aggressive, leading much of the rest of East Asia to pull closer to America

- sabotaging the Japan - South Korea - China alliance which had been getting nicely started, which would have made the world's largest economic power

- helping the US destabilise the whole region, something America typically seeks

- and maybe inflaming one flank of World War III

Michael's picture

And many of those "thousand points of light" Japanese Illuminati will be eliminated.

saturn's picture

"It now has several two options: ..."


Jethro's picture

From a slightly different perspective, China can absorb this sort of loss (or perhaps just thinks that it can). Maybe their military is more to control their own population rather than to be an expeditionary force? The older people will still remember the Great Leap Forward, whereas the Japanese population won't generally have that level of personal adversity to draw upon. China might be willing to "self sacrifice" in order to strike a mighty blow.

Jethro's picture

I guess it was worth saying twice.

Unbezahlbar's picture

Since Japan is in such a hole (2,000% debt to revenue and Fuki saturated) they may feel they have nothing to lose. Luckily, Panetta was just there prob selling them $200 Billion in equipment .....$200 Billion borrowed from JPM (or GS or C) to buy the WMDs from the M-I establishment (which is good for USA to stimulate the economy and create jobs).


Bankers are never far behind a war.

Parabolic's picture

1.  long kyle bass bitchez

2. physical = no counterparty risk!

Max Hunter's picture

This isn't even remotely surprising. Beck is funded by Jews. Jews need the Holocaust religion repeated.. and repeate.. and then repeated some more.. just in case you missed it the first 50 thousand fucking times in your life..

john39's picture

and meanwhile every other mass slaughter inflicted on humanity is ignored...  for example, the tens of millions of Russians who died at the hands of zionist bolsheviks...      Mormons are totally hypnotized by Israel on pseudo religious grounds... Romney is obviously no different. 

Irene's picture

Oh wow!  Stalin was a Jew?  Who knew.

El Tuco's picture

No but his whole politiburo was....

Lenin also was a Jew who killed and sent millions to labor camps for speaking their own languages instead of Russian while he spoke yiddish...

So fuck face learn some history.

spdrdr's picture

Source?  Lenin was not a Jew, and did not speak Yiddish.

Your grasp of history seems somewhat deficient itself.

lakecity55's picture

Not so fast, Comrade:

Vladimir Ilyich Ulyanov was part Hebe:,8599,2077413,00.html

spdrdr's picture

So, his mother (who was raised a Lutheran) had a father who was born Jewish?

Lenin, who was baptised in the Russian Orthodox church, is therefore a Jew who speaks Yiddish (according to the commenter above, giving history lessons)?

By Allah (swt), you Jew-haters draw a long bow sometimes.......

El Tuco's picture

Your so fucking stupid....I can't help you to understand.

Rogue Trooper's picture

For what it's worth I doubt Lavrentiy Beria would have wasted a bullet on all you useful fuckin' idiots.

I used razor blade was much cheaper......

Efficiency BItChez - FORWARD SOVIET :/

Kobe Beef's picture

Focusing only on Lenin's disputed ancestry conveniently leaves out the contributions of the following:

Leon Trotsky

Grigory Zinoviev

Solomon Lozovsky

Maxim Litvinov

Yuri Andropov

Jacob Sverdlov

Jacob Yurovsky

Lazar Kagonovich

Mikhail Kagonovich

Genrikh Yagoda

Nikolai Yezhov

Max Lieven

Matvei Berman

Boris Berman

Yona Yakir

Lev Inzhir

need more?

The list includes nearly all Kommisars and Generals of the Red Army. And we have not even scratched the surface of the financiers.

"There is no need to exaggerate the part played in the creation of Bolshevism and in the actual bringing about of the Russian Revolution by these international and for the most part atheistical Jews." --Winston Churchill

lakecity55's picture

They had jew names but changed them to Russian. Who would believe a Comrade Finkelsteinski?

So, it's Comrade Zinoviev, get it?

If the Protocols of Zion were forged, how come they are coming true?

I do like Beck's analyses, but he is deep into the zionista voodoo.

These aren't the Jews you are looking for.

lakecity55's picture

Damn! Everywhee you look in history, some zionista pops up.

I hope my jew buddies are not laughing behind my back in some secret room under the temple.

Maybe they are just regular jew guys. I hope so.

nmewn's picture

A quarter million Gypsies could not be reached for comment.

Winston Churchill's picture

As well as homosexuals,communists,trade unionisrts,morons and the

physically handicaped.

The Nazi's were equal oppotunity exterminators.

11 million died in the concentation camps.Who remembers the other 5.

A Nanny Moose's picture

"Then they came for me, but there was nobody left to speak for me."

Rogue Trooper's picture

True, Stalin, Mao, Hitler, Pol Pot, Kissenger, et al.  At least they killed every fucker'.

They did not discriminate.  Really fair, a pogrom now and then, what's not to like?

Kobe Beef's picture

11 million died in concentration camps, eh? Source please.

sushi's picture

1.5 million Armenians "disappeared" by Turkey.

Ineverslice's picture

Ambrose P., Bloody Panda, lol.

I like their orange chicken.