1/8 So I have been thinking quite a bit about Japan and the JPY / JGB 10y YCC setup here a lot in recent weeks, particularly in the context of how SNB bungled EURCHF years ago.

I have an old expression I call “testing the fence.” This is now highly relevant for CBs in 2022.

2/8 In the classic Jurassic Park, there is a scene where they have to feed the grown velociraptors in a giant pen by lowering a cow because the raptors would attack the electrified fences when the feeders showed up.

3/8 The raptors were highly intelligent - they never attacked the same place twice and would test the fence systematically for weakness. So they had to be contained in a pit.

4/8 The 10yr JBG 25bps YCC barrier is a conventional electrified fence run by economists. Macro traders are raptors. But instead of caging them in a pit of “whatever it takes” vague language and surprise rate hikes, the JCB insists on blowing yen on a classic vulnerable fence.

5/8 Unfortunately now there’s Dennis Nedry’s black swan inflation - who would have thought an energy net importer/global high tech manufacturing floor would have an inflation problem despite terrible demographics and public debt?

6/8 And so begins raptors’ test of the fences. A “lose lose” setup of “either 25bps YCC gives, or 126 USDJPY gives, and it’s a long way down either way” is now in play, and it is the sort of “break the pound” ERM trade that every Soros wannabe has been dreaming about for 30yrs.

7/8 The JCB thinks they are the tyrannosaurus that comes in at the end to save the day.

8/8 In reality Kuroda is Muldoon, the raptors are already out, and he is about to feel this moment up close and personal in 2022.