$1.37 Trillion in Japanese Bonds May Fuel Bitcoin and Gold Amid Dollar Expansion

On March 11, 2011, an earthquake hit Japan, triggering a massive tsunami and nuclear panic. The Nikkei index plummeted nearly 20% intraday, while the USD/JPY pair crashed toward 70, pushing the yen to one of its strongest levels since World War II.

The strong yen posed a problem for traders like the author, who held a long USD/JPY position. However, they decided to hold onto it as traders kept slamming buy orders, increasing their ETF position. The author noted that natural disasters in Japan often lead to repatriation of overseas capital, which means selling foreign stocks and bonds.

Shinzo Abe launched Abenomics in 2012, aiming to weaken the yen through unlimited bond purchases under the YCC framework, aggressive fiscal expansion, and replacing GPIF's leadership. The result was a significant depreciation of the yen by more than half, making it a funding currency for corporations and speculators.

However, this has also led to public anger and xenophobia in Japan. Devaluation has fueled inflation, and the weak yen has pushed global assets higher for over a decade. But for wealthy asset holders, even good things must come to an end. The yen is now the world's most undervalued currency.