Last night's over-promised and under-delivered 'third arrow' [5] from Abe appears to have solidified market opinions about the chances of Abe slaying his deflation-monster nemesis. UBS' CIO Alex Friedman fears that Japan may face a fearsome stagflation - where accelerating inflation in asset prices is not met by higher growth rates - a scenario he calls "Abegeddon." In an "Abegeddon" scenario, Friedman said "investors may grow increasingly concerned about the sustainability of Japanese debt levels that could lead to a 'stampede' out of government bonds." With Nikkei 225 futures having faded their European morning bounce and pressuring back towards the 20% 'bear market' correction levels once again, it seems the 'stampede' is out of growth-expectation-driven equities as JGBs are bid for now. That bid (no matter how hard the BoJ tries) is unlikely to last if the doubt grows as Japan's debt-to-GDP would rise above 300% (from 226% currently) and the 10Y JGB yield could approach 5%!
[6]