Alas, it appears I\u2019m now part of the fraternity. I lost money shorting Japanese government bonds<\/a> this year.<\/p>\n In May and June, it looked like the bond vigilantes had finally awakened from their long coma. The 10-year yield more than doubled, shooting from 0.44% to nearly 1.0% in less than two months. The bond market seemed to believe for a moment that Abenomics might\u2014just might<\/i>\u2014be successful in shaking Japan out of its two-decade deflationary funk.<\/p>\n So much for that idea. Yield have trickled lower ever since, and the 10-year now yields 0.64%…or about 75% less than the 10-year Treasury yield in the U.S. One prominent Japanese analyst sees the yield falling all the way to 0.25%<\/a>.<\/p>\n This is madness.<\/p>\n At the risk of whipping a dead horse, Japan is sleepwalking into a major debt and currency crisis. It is not a matter of \u201cif\u201d but \u201cwhen.\u201d<\/p>\n Related: \u201cJapan Distracts Investors With Olympic Five-Ring Circus<\/a>\u201d<\/p>\n Video: \u201cChina, Japan and their Demographic Time Bombs<\/a><\/p>\n As I wrote earlier this year,<\/a> debt service now accounts for 43% of Japanese government revenues and quarter of all spending. Furthermore, more than half of all Japanese government spending is financed by new borrowing. This means that half of every yen borrowed is used to service existing debts. It\u2019s a debtor\u2019s nightmare that gets worse every year with budget deficits that are consistently higher than 7% of GDP.<\/p>\n All of this might <\/i>be manageable if Japan were a young and growing country. But it\u2019s not, and it never will be again (or at least not in our lifetimes). Japan is the oldest country in the world, a place that sells more adult diapers than infant diapers<\/a>. It\u2019s population\u2014and tax base\u2014is shrinking, and its national savings rate\u2014once among the highest in the world\u2014is now lower than that of the United States<\/a>. This means that the Japanese government cannot depend on a pliant domestic investor base to lend it money. It will have to depend even more heavily on the Bank of Japan or\u2014worse\u2014go to the international bond market cap in hand.<\/p>\n At some point, the bond market is going to collectively realize that the game is up and that Japan\u2019s massive debts\u2014currently pushing 250% of GDP\u2014are not payable. As yields rise, the Bank of Japan will be forced to intervene, which will cause the value of the yen to plunge. In short order, Japan will shift from a deflationary monetary regime to a hyperinflationary one.<\/p>\n That day isn\u2019t here yet. If anything, the bond market is more complacent now than it was a year ago. But when it comes, you will have your choice of available trading options. In my last attempt, I used the <\/b>PowerShares DB 3x Inverse Japanese Govt Bond ETN<\/strong>(JGBD<\/a>), which is a leveraged version of the PowerShares DB Inverse Japanese Govt Bond ETN <\/strong>(JGBS<\/a>). Both are viable options for individual investors.<\/p>\n WisdomTree also has a product in the works<\/a>, one that would pair a bearish bet on Japanese bonds with a long position in U.S. bonds.<\/p>\n With yields already as low as they are, your risk of loss is tolerable. In fact, your greatest risk is not to your wallet but to your reputation: you could end up becoming a member of the illustrious club of macro traders that shorted Japan too soon…<\/p>\n This article first appeared on InvestorPlace<\/a>.<\/p>\n Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter<\/a> and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he had no position in any security mentioned. Click here<\/a> to learn about his top 5 global investing trends and get your copy of \u201cThe Top 5 Million Dollar Trends of 2013.\u201d <\/em><\/p>\n This article first appeared on Sizemore Insights as Japanese Bond Market: Armageddon Postponed…For Now<\/a><\/p>\n![\"Japan](\"http:\/\/investorplace.com\/wp-content\/uploads\/2013\/10\/Japan-10-Year-300x173.gif\")
<\/a><\/p>\n