Haha, well pri, I did actually have some thoughts but was going to contemplate them a bit further before putting pen to paper, as it were. But who knows if I will get around to that so here goes:
I think the BOJ is playing with fire here. People (myself included) wonder how investors can buy JGBs at such low yields, given the likelihood of future debt servicing problems based on debt loads, demography, etc. The answer, I think, is that people aren’t thinking about that stuff — as long as yields are higher than (or not much lower than) inflation, they just lap up those JGB’s. This has worked out, and Japan inflation has stayed super low (or negative), for so long, that people don’t really question it. (This, as an aside, is why I think people who use Japan as a prologue for the US are making a mistake: our REAL yields are already far lower than Japan’s ever were on a sustained basis).
So it occurs to me that the long awaited tipping point for the Japanese bond market might come when Japanese inflation increases in a non-transitory way. Once the Japanese people internalize a higher rate of inflation, they will demand higher yields, and (depending on the size of the yield increase) that’s when the trouble could start.
Of course if the JGB can thread the needle perhaps that won’t happen, but as I said, I think they are playing with fire. And as you said, we do indeed live in interesting times.