Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, August 6, 2026

AI Summary. Data-center capital spending is projected to rise from 1.4% of GDP to 3.1% within two years, about 0.85 percentage points a year, roughly twice the pace of the housing boom's fastest stretch (0.5 points a year) and far above telecom fiber's (about 0.15). In level, the buildout exceeds twice the fiber peak but remains under half the housing peak.

Torsten Sløk Apollo
Date Posted:

Sløk forecasts hyperscaler capex to peak at 3.2% of GDP, less than half housing’s 6.6% peak, but it is projected to rise ~70% more quickly – 0.85pp of GDP per year at its fastest, versus 0.5pp for housing.

How fast is the data-center buildout growing compared with past capex booms?

Core argument: Data-center capex is projected to rise from 1.4% of GDP in 2025 to 3.1% in 2027, adding 1.7 percentage points in two years, or roughly 0.85 percentage points a year.

In level, the ongoing data-center buildout sits between the fiber and housing cycles: more than twice the fiber peak, less than half the housing peak. In cumulative change, what matters is not the level of the share but how much it moves. On this measure, the data-center buildout is the bigger capex cycle. In speed, the contrast is sharper still, and it holds even when each cycle is measured over its own fastest stretch. Data-center capex adds 1.7 percentage points in just two years, from 1.4% of GDP in 2025 to 3.1% in 2027, or roughly 0.85 percentage points a year. Housing's quickest phase, from 5.1% in 2002 to 6.6% in 2005, ran at 0.5 percentage points a year, and telecom's at around 0.15. The AI cycle is building at close to twice the pace of the housing boom at its fastest.

Takeaways by Macro Roundup® AI

  1. Data-center capex is projected to rise from 1.4% of GDP in 2025 to 3.1% in 2027, adding 1.7 percentage points in two years, or roughly 0.85 percentage points a year.
  2. Housing's fastest stretch, from 5.1% of GDP in 2002 to 6.6% in 2005, ran at 0.5 percentage points a year and telecom's at about 0.15, leaving the data-center buildout at close to twice the pace of the housing boom at its quickest.
  3. In level, the data-center buildout sits between the fiber and housing cycles at more than twice the fiber peak and less than half the housing peak, while ranking as the bigger capex cycle measured by cumulative change.

Related Articles:

  • The Market Is Asking Questions — Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.
  • Semiquincententacles — Leading artificial-intelligence labs are moving to usage-based token pricing on a cost-plus basis that includes total ownership costs, pushing token prices higher and giving some enterprises reason to migrate to cheaper open models. Frontier models remain necessary for cybersecurity, distillation training, agents, and scientific discovery, where maximum performance is required.
  • AI: The ROI Runway Could Be Long Outside the Tech Sector — AI company valuations rest on the assumption that profit margins across non-tech firms will eventually rise, but outside a handful of sectors adoption is slow, creating a divergence between front-loaded valuations and slower cash flows. If the per-use costs of AI models converge toward zero, revenue may be insufficient for all major cloud providers.

AI Summary. After a fifteen-year stretch in which US equities, technology and growth stocks led, equity gains have broadened geographically, with the US the weakest of the major regions. The five largest US stocks now trade at a price-to-earnings ratio only marginally above the other 495, after holding a consistent premium since 2017.

Peter Oppenheimer, Sharon Bell, Guillaume Jaisson, Elena Porfidia, et al. Goldman Sachs
Date Posted:

Noting US underperformance relative to the world since the start of 2025, and the fact that the 5 largest US stocks now have a P/E only marginally above that of the S&P 495, Goldman argues that the post-crisis regime of concentrated returns is over.

Are equity gains broadening beyond US growth and technology leadership?

Core argument: The five largest U.S. stocks trade at a P/E ratio only marginally above the other 495, after carrying a consistent premium since 2017.

In the fifteen years that followed the financial crisis, equity markets were very bifurcated. The US equity market dominated regionally, Technology consistently outperformed sectorally, and Growth persistently outpaced Value. Since 2025, and again through this year, the opportunity set has shifted. Equities have performed well, but the geographical spread has widened. The US has been the weakest of the major regions. [Further], the biggest five stocks in the US now have a P/E ratio only marginally above the other 495 but had previously been on a premium consistently since 2017.

Takeaways by Macro Roundup® AI

  1. The five largest U.S. stocks trade at a P/E ratio only marginally above the other 495, after carrying a consistent premium since 2017.
  2. In the fifteen years after the financial crisis, equity markets were bifurcated, with the U.S. dominating regionally, Technology outperforming sectorally, and Growth persistently outpacing Value.
  3. Equities have performed well since 2025 while the geographical spread has widened, with the U.S. the weakest of the major regions.

Related Articles:

  • The Magnificent Seven Are Riding Into the Sunset — Companies have steadily "de-equitized" through buybacks and cash-funded mergers, supporting share prices, but Barclays projects equity supply could rise for the first time in decades as large cloud computing firms fund capital spending. Their high valuation multiples make equity cheaper than debt, and that re-equitization would weigh on share prices.
  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • One Hundred Years in the U.S. Stock Markets — Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.

AI Summary. Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices. Crowds do not always correct errors: when beliefs and trading become correlated, or when uninformed participants flood a market, gaps open between implied and likely probabilities that informed participants can exploit.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

Price discovery in the stock market involves information from many disparate sources. “From time to time, beliefs and trading in the stock market become correlated and crowds amplify, rather than correct, errors. This is the madness of crowds.”

Do prediction markets always correct investor errors?

Core argument: Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices.

The ability to compare information from different markets has never been better. For example, prediction markets now offer contracts tied to key performance indicators for companies, which may provide investors with an additional way to assess the expectations embedded in stock prices. From time to time, beliefs and trading in the stock market become correlated and crowds amplify, rather than correct, errors. Steven Crist, an author and well-known handicapper, has noted that “the best friend that horseplayers have are the big race days.” The reason is that a wave of uninformed participants place bets that create a large gap between the implied and likely probability of winning. This opens an opportunity for informed handicappers to make profitable bets.

Takeaways by Macro Roundup® AI

  1. Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices.
  2. Beliefs and trading in the stock market become correlated from time to time, and crowds amplify rather than correct errors.
  3. Handicapper Steven Crist has noted that big race days are horseplayers' best friend, because a wave of uninformed bettors creates a large gap between implied and likely win probabilities, opening profitable bets for informed handicappers.

Related Articles:

  • Who Is On the Other Side? — Research defining an industry "run-up" as a cumulative return of 100% or more over two years finds that such run-ups do not predict unusually low average future returns, though they do raise the probability of a crash, defined as a 40% drawdown. Volatility, turnover, and equity issuance help predict those crashes.
  • One Hundred Years in the U.S. Stock Markets — Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.
  • Chart of the Day: U.S. Households at Record Equity Allocation Heading into AI IPOs — U.S. households hold a record share of their assets in equities, exceeding the dot-com and Nifty Fifty eras, while price-earnings multiples sit near all-time highs and fewer than 10 stocks account for almost 40% of the S&P 500's market value. The author argues equity ownership has become structural rather than discretionary, making markets simultaneously more stable and more fragile.

AI Summary. In China, structural monetary tools direct credit toward targeted sectors, and the authors' evidence suggests credit expansion working mainly through the production side can sustain output, leverage, and balance-sheet growth without restoring pricing power or profitability. Faster money supply growth is associated with a temporary rise in producer price inflation that fades and turns disinflationary over longer horizons.

Jeffery (Jinfan) Chang and Wei Xiong National Bureau of Economic Research
Date Posted:

China’s state-directed system employs monetary easing mainly to channel credit to producers, initially boosting output and PPI, but fostering excess capacity and leverage without matching household demand. The end result is deflation or “involution.”

Does credit directed through producers restore pricing power and profitability?

Core argument: A positive shock to China's M2 growth is followed by higher PPI inflation over roughly four quarters, peaking around the third quarter and significant at the 90% level, before fading, crossing zero after about five quarters, and turning negative.

[In China] structural monetary tools are designed to direct credit toward targeted sectors and support activity aligned with broader policy priorities. Our evidence suggests that when credit expansion operates mainly through the production side, it can sustain output, leverage, and balance-sheet expansion without restoring pricing power or profitability. Figure 4 reveals a cyclical pattern. A positive shock to M2 growth is followed by a positive response of PPI inflation over roughly the next four quarters, with the effect peaking around the third quarter and significant at the 90% level. The response then gradually fades, crosses zero after about five quarters, and turns negative thereafter. Faster aggregate credit growth is associated with disinflationary pressure over longer horizons, indicating that monetary easing does not generate sufficiently strong household demand.

Takeaways by Macro Roundup® AI

  1. A positive shock to China's M2 growth is followed by higher PPI inflation over roughly four quarters, peaking around the third quarter and significant at the 90% level, before fading, crossing zero after about five quarters, and turning negative.
  2. Faster aggregate credit growth in China is associated with disinflationary pressure over longer horizons, indicating that monetary easing does not generate sufficiently strong household demand.
  3. China's structural monetary tools are designed to direct credit toward targeted sectors, and evidence suggests that credit expansion operating mainly through the production side can sustain output, leverage, and balance-sheet expansion without restoring pricing power or profitability.

Related Articles:

  • China’s “Anti-Involution” Campaign: Global Implications — China's economy has slowed as domestic investment stagnates and consumer spending stays weak, with the shortfall partly offset by rising net exports. The author argues these internal problems are being passed to the rest of the world, since export values are rising about 6% a year while import values are down 2.2%.
  • China’s Next-Generation Industrial Policy — China's export growth is concentrated in upstream, higher-tech goods: exports of intermediate inputs rose 26% and capital goods 32% between 2021 and 2024, while consumption goods exports were broadly flat. This shift embeds China deeper in global production systems and aligns with its long-running import substitution strategy of localizing entire value chains.
  • The Real China Model — China generates more electricity annually than the United States and European Union combined, having added capacity equivalent to the United Kingdom's total supply each year. Electricity makes up nearly 30% of China's energy use, versus 22% in the US and 21% globally, and its share is growing about 6% a year.

AI Summary. China is pursuing hundreds of billions of dollars in unpaid taxes from the ultra-rich, scrutinizing overseas capital gains and investments dating back as far as 2000 while also seeking to expand control of outbound capital flows. Budget revenue fell 1.7% to Rmb21.6tn ($3.2tn), and land sale revenue dropped from a Rmb8.7tn peak to Rmb4.15tn after a property slump.

Leo Lewis, Edward White, Sun Yu and Owen Walker Financial Times
Date Posted:

China has launched a tax crackdown on the overseas capital gains of China’s rich, as Beijing looks to offset a worsening fiscal outlook. Total government revenue from land sales has fallen ~52% since 2021.

Is China chasing decades of unpaid taxes to offset falling revenue?

Core argument: China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades, targeting the ultra-rich as Beijing seeks to fill a deepening fiscal hole.

China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades as Beijing seeks to fill a deepening fiscal hole by targeting the ultra-rich. Authorities have stepped up scrutiny of overseas capital gains and investments, in some cases going back as far as 2000, in a campaign that comes as Beijing also seeks to significantly expand control of outbound capital flows. China’s budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7% to Rmb21.6tn ($3.2tn) in 2025. Total government revenue from land sales, once a core revenue source for the state, collapsed from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.

Takeaways by Macro Roundup® AI

  1. China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades, targeting the ultra-rich as Beijing seeks to fill a deepening fiscal hole.
  2. China's budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7% to Rmb21.6tn ($3.2tn) in 2025.
  3. Total Chinese government revenue from land sales, once a core revenue source for the state, fell from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.

Related Articles:

  • China Is Wrestling With A Novel Phenomenon: Inherited Wealth — The share of Chinese who believe effort is always rewarded fell from 62% in 2004 to 28% in 2023, according to survey research, with respondents now citing unequal opportunity, connections, and being born rich as the keys to wealth. Those reporting their family situation had improved over the prior five years fell from about 70% to 39%.
  • The Exodus of China’s Wealthy to Japan — Japan's Chinese resident population reached about 822,000, up 60,000 from a year earlier. Prospective Chinese buyers of Japanese property must move money out of China, which limits outflows, and secure visas—available to those investing at least $32,000 in a Japanese business with an office and two or more employees.
  • The Sinister Disappearance Of China’s Bosses — China's liuzhi detention system operates alongside normal policing, requiring no court approval and denying detainees lawyers, with windowless cells, constant lighting and round-the-clock supervision. Stock-exchange filings show 39 executives at listed companies disappearing into the system by the end of September, exceeding the prior year's record.

Friday, August 7, 2026

AI Summary. 30% of US adults have literacy skills typical of a 10-year-old, yet US workers scoring at that low level earn an average of nearly $30 an hour and two-thirds are employed, compared with about $20 and fewer than half employed in Britain. The author argues this reflects stronger economic growth rather than vocational education policy.

John Burn-Murdoch Financial Times
Date Posted:
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Using OECD skills data and the Luxembourg Income Study, Burn-Murdoch finds US workers at the lowest levels of literacy and numeracy earn ~ on par with British workers scoring a 2, ~ a mean score.

Does economic growth matter more than education policy for low-skilled workers' pay?

Core argument: 30% of US adults have literacy skills typical of a 10-year-old, yet US workers scoring that low earn an average of almost $30 per hour and two-thirds of them are employed.

30% of US adults have literacy skills typical of a 10-year-old. The same proportion of US workers who score stunningly low on literacy earn an average of almost $30 per hour, and two-thirds of them are in work. Their British counterparts make the equivalent of $20 and fewer than half are employed. This all looks more like the fruits of years of stronger growth than vocational education policy. We should view education as creating potential that a strong economy unleashes (and a weak one disappoints).

Takeaways by Macro Roundup® AI

  1. 30% of US adults have literacy skills typical of a 10-year-old, yet US workers scoring that low earn an average of almost $30 per hour and two-thirds of them are employed.
  2. British workers with similarly low literacy scores earn the equivalent of $20 per hour and fewer than half are employed, a gap the author attributes to years of stronger US growth rather than vocational education policy.
  3. The author argues that education should be viewed as creating potential that a strong economy unleashes and a weak one disappoints.

Related Articles:

  • Do Adults Have the Skills They Need to Thrive in a Changing World? — An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.
  • Toward An Understanding Of The Returns To Cognitive Skills Across Cohorts — The authors find that the estimated decline in labor market returns to pre-labor-market cognitive skills for white men across two U.S. youth cohorts depends critically on the widening and increased left-skewness of the test-score distribution, with declines appearing only at the lower end of that distribution.
  • Cognitive Skills Beyond Childhood — Wages at age 50 rise more steeply with cognitive skills measured at age 16 than with cognitive skills measured at age 50; for women, moving from average to two standard deviations above average raises expected hourly wages from £11 to £22 using age-16 skills, versus £12 to £15 using age-50 skills.

AI Summary. In artificial intelligence, profit margins rise the further a company sits from the end customer, reversing the usual pattern in which owning the customer relationship commands the highest margins. The author argues the upstream profits are funded by capital raised by the loss-making consumer-facing layer rather than by cash generated from end demand.

Torsten Sløk Apollo
Date Posted:

AI profits have so far come only from the buildout itself, while the end-product generates losses. Slok notes that in the absence of revenue from models and applications, raising capital “can bridge the gap for a while, but not indefinitely.”

Are AI profit margins higher farther from the end customer?

Core argument: In the AI value chain, profit margins rise the further a firm sits from the end user, reversing the usual pattern in which the owner of the end-customer relationship earns the higher margin.

In business, profit margins are frequently higher for the owner of the end-customer relationship. But that is not the case for AI. In AI, profit margins are higher the further you get from the end user. This is important because it means the AI boom's profits are currently being funded by investors rather than earned from customers. The upstream margins are real, but they are paid for out of capital raised by the layer losing money, not out of cash generated by end demand. That makes the 41% contingent on the -59% continuing to be financeable. The bottom line is that the most profitable part of the AI value chain depends on the least profitable part continuing to grow revenue or raise capital.

Takeaways by Macro Roundup® AI

  1. In the AI value chain, profit margins rise the further a firm sits from the end user, reversing the usual pattern in which the owner of the end-customer relationship earns the higher margin.
  2. The AI boom's upstream 41% margins are paid out of capital raised by the layer losing money at -59%, not out of cash generated by end demand.
  3. The most profitable part of the AI value chain depends on the least profitable part continuing to grow revenue or raise capital.

Related Articles:

  • The State of the AI Economy — An analysis estimates the AI ecosystem generated $110bn in revenue over 12 months excluding double-counting, with the most recent month annualizing to a $175bn run rate. After separating AI-specific capital spending from the roughly $120bn hyperscalers already spent annually and depreciating compute over 6 years, revenues attributable to hyperscalers roughly cover depreciation.
  • AI: The ROI Runway Could Be Long Outside the Tech Sector — AI company valuations rest on the assumption that profit margins across non-tech firms will eventually rise, but outside a handful of sectors adoption is slow, creating a divergence between front-loaded valuations and slower cash flows. If the per-use costs of AI models converge toward zero, revenue may be insufficient for all major cloud providers.
  • A Slower AI Payoff Would Be Everyone’s Problem — If artificial intelligence profits arrive later than expected, committed capital spending and depreciation would still hit on schedule, squeezing margins, stretching balance sheets toward more debt and possible ratings downgrades, and repricing equities. Because a handful of large technology firms dominate the indices, the author argues the damage would spread to chips, power, data centers and the broader market.

AI Summary. The yen rose as much as 1.1% against a weaker dollar after a softer-than-expected US payrolls report, before trimming the gain to about 0.4% at 157.80 per dollar as the dollar rebounded. The move fueled speculation that Japanese authorities could again intervene to support the currency.

Mia Glass and Naomi Tajitsu Bloomberg
Date Posted:

Before today’s Yen rebound against the dollar on a weak US jobs report, the currency had surrendered roughly half of last week’s intervention-driven gains, raising the prospect of another round of coordinated US-Japan intervention.

Does weak US jobs data lift the yen against the dollar?

Core argument: The yen rose as much as 1.1% against the dollar after an unexpectedly soft US payrolls report, before the move faded as the dollar rebounded.

The yen surged against a weaker dollar after an unexpectedly soft US payrolls report on Friday, offering the latest fodder for speculation that authorities could intervene in the Japanese currency again. The currency rose as much as 1.1% against the dollar after the employment data. The move faded as the dollar rebounded, leaving the yen trading at 157.80 per dollar by 11:15 a.m. in New York, a gain of about 0.4%.

Takeaways by Macro Roundup® AI

  1. The yen rose as much as 1.1% against the dollar after an unexpectedly soft US payrolls report, before the move faded as the dollar rebounded.
  2. The yen traded at 157.80 per dollar by 11:15 a.m. in New York, a gain of about 0.4% against a weaker dollar.
  3. The soft US employment data fueled speculation that authorities could again intervene in the Japanese currency.

Related Articles:

  • The Real Message In The Yen Intervention — A US-backed intervention to support the yen was funded largely by selling euros rather than dollars, limiting the volume of dollar sales required. The author argues this signals that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks deploy their dollar reserves in unlimited quantities.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • Shadow Government Bond Yields in the G10 — The author estimates "shadow" 30-year government bond yields for Germany, Spain, Italy, Greece and Japan — what long-term yields would be if central banks withdrew support such as Japanese government bond purchases and the European Central Bank's backstop facilities. These estimates assume no outright central bank selling, so they represent a lower bound on how high yields could go.

AI Summary. Japan's 30-year government bond yield spiked after the prime minister pledged to end "excessive" fiscal austerity, and the New York Federal Reserve followed within days with a "rate check" in currency markets to damp yen depreciation pressure. The author argues this reaction indicates markets are worried about Japan's fiscal position rather than simply trading reflation.

Robin Brooks Robin Brooks Substack
Date Posted:

Brooks argues that the markets’ reactions to Takaichi’s comments around “excessive” fiscal austerity support his view that “Yen depreciation is clearly about debt and yield suppression, which is something intervention can’t possibly hope to fix.”

Do rising long-term yields signal fiscal worries rather than reflation trades?

Core argument: Japan's 30-year government bond yield spiked on January 20, the day after Prime Minister Takaichi said her administration would end "excessive" fiscal austerity, illustrating market worry about Japan's fiscal situation.

The evening of January 19, Prime Minister Takaichi gave a speech in which she said her administration would put an end to “excessive” fiscal austerity. The next day the 30-year government bond yield spiked, a great illustration just how worried markets are about the fiscal situation in Japan. In fact, it was precisely this episode that saw the US wade into Japanese currency markets for the first time this year. The NY Fed did its infamous “rate check” on Jan. 23, i.e. in the days immediately after Takaichi’s comment. The US was clearly worried things were about to run out of control in Japan and decided to put a damper on Yen depreciation pressure. If markets were merely driving the Yen weaker as part of a reflation trade, they’d hardly react the way they did to Takaichi’s comment on ending “excessive” fiscal austerity.

Takeaways by Macro Roundup® AI

  1. Japan's 30-year government bond yield spiked on January 20, the day after Prime Minister Takaichi said her administration would end "excessive" fiscal austerity, illustrating market worry about Japan's fiscal situation.
  2. The New York Fed conducted a "rate check" on January 23, the first US move into Japanese currency markets this year, days after Takaichi's comment, to damp Yen depreciation pressure.
  3. The market reaction to Takaichi's fiscal comment argues against the view that Yen weakness is merely a reflation trade, according to the author.

Related Articles:

  • The Real Message In The Yen Intervention — A US-backed intervention to support the yen was funded largely by selling euros rather than dollars, limiting the volume of dollar sales required. The author argues this signals that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks deploy their dollar reserves in unlimited quantities.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • Shadow Government Bond Yields in the G10 — The author estimates "shadow" 30-year government bond yields for Germany, Spain, Italy, Greece and Japan — what long-term yields would be if central banks withdrew support such as Japanese government bond purchases and the European Central Bank's backstop facilities. These estimates assume no outright central bank selling, so they represent a lower bound on how high yields could go.