What if the BOJ's unrealised bond losses exceed its own capital?
BOJ mark-to-market JGB losses exceeding capital is an optics shock, not a funding event — a central bank with the printing press can't be insolvent in its own currency — but it dents yen-anchor confidence and pressures carry and credit at the margin. No true analogue; closest is the 2022-23 SNB and Fed paper-loss debates that moved sentiment, not solvency. Forward: the real risk is political pressure to slow normalization, capping JGB yields and weakening the yen.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 6–18 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. A rate-normalizing BOJ reveals mark-to-market JGB losses exceeding its capital, raising solvency questions for the yen's anchor. The trigger decomposes into signed root‑shocks — FX carry appetite ▼ · Credit spreads ▲ — which propagate through our causal graph to the markets below.