Name: Yen Bailout Failing? Are Bond Vigilantes Back? Economist Steve Hanke Answers
Uploaded: 2026-08-06T17:13:52+00:00
Duration: 3153 s

Speakers

Steve Hanke — Professor of Applied Economics, Johns Hopkins University

David Lin — Founder & Host, The David Lin Report / ex-Anchor, Kitco News

Summary

Professor Steve Hanke discusses the historic US intervention to prop up the Japanese yen, arguing it is unlikely to reverse the yen's fundamental weakness driven by anemic Japanese money supply growth and fiscal risks. He also warns that US long-term bond yields will continue rising due to accelerating money supply, geopolitical tensions, and fiscal deficits, advising against long-duration bonds, while expressing a positive view on US financial stocks. The conversation further touches on the 1998 Asian financial crisis, the difference between pegged and currency-board exchange rates, and the political motivations behind US currency interventions.

US intervened to support the yen by buying JPY with euros, an unprecedented move in decades.
Hanke views the yen's appreciation as a likely dead-cat bounce; fundamentals still point to yen weakness.
Japanese money supply is growing at only 2.2%, far below the 6% needed for the 2% inflation target.
Political and fiscal risks from Japan's new prime minister add to yen headwinds.
US long-term bond yields are rising strongly; bond vigilantes are returning due to hot money supply, Iran war, and deficits.
Investors should avoid long-duration US Treasuries; yields are expected to go higher.
US financial stocks are favored; bank profits have soared and deregulation provides more lending firepower.
Historical parallels: the 1998 Asian crisis and why a currency board for Indonesia was rejected.

Ideas

Steve Hanke Professor of Applied Economics, Johns Hopkins University 14:57

Yen weakness to persist on fundamentals.

The Japanese yen is likely to weaken further because of fundamental factors: Japan's money supply growth is too anemic at 2.2% (should be ~6% to hit the 2% inflation target), which caps nominal GDP and leads to low inflation, low interest rates, low economic growth, and a weak currency. Additionally, the prime minister's plans to increase military spending and expand the deficit add political and fiscal risk that further undermines the yen. The US-led intervention is just a dead-cat bounce and introduces a big-player element that will create more volatility but won't reverse the fundamental downtrend.

Steve Hanke Professor of Applied Economics, Johns Hopkins University 18:53

Japanese yields will fall, buy JGBs.

Japanese government bond yields are likely to fall because yields follow inflation, and Japan's inflation rate is only 1.6%, well below the 2% target. The low inflation is driven by anemic money supply growth of 2.2%, which will eventually pull yields lower, contrary to the recent spike in Japanese long-term rates.

Steve Hanke Professor of Applied Economics, Johns Hopkins University 42:33

Avoid US long bonds, yields rising.

US long-term bond yields will keep rising because the money supply (Divisia M4) is accelerating rapidly, the war on Iran is creating risk and uncertainty, and the US fiscal deficit remains out of control. Bond vigilantes are returning, and the 10-year yield already exceeds Treasury Secretary Bessent's red line of 4.5%. Investors should not be long long-duration bonds because rising yields mean falling prices.

Steve Hanke Professor of Applied Economics, Johns Hopkins University 46:48

Stay long US financial stocks.

US financial stocks and banks are attractive based on recent history; bank profits have soared. Higher profits increase bank capital, giving them more capacity to lend, and ongoing deregulation is easing capital requirements, providing further tailwinds for the sector.

Yen Bailout Failing? Are Bond Vigilantes Back? Economist Steve Hanke Answers

Summary

Ideas

Up Next