What if deferred interest under Japan's 125% mortgage rule accumulates and triggers a cliff of defaults?
As the 125%-rule deferred interest accumulates for variable-rate borrowers, a cohort hits negative amortization and outright default when caps expire, concentrating losses in regional banks and the housing-loan portfolios of shinkin.
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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 1–3 years 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. As the 125%-rule deferred interest accumulates for variable-rate borrowers, a cohort hits negative amortization and outright default when caps expire, concentrating losses in regional banks and the housing-loan portfolios of shinkin. The trigger decomposes into signed root‑shocks — Credit spreads ▲ · Mortgage rates ▲ · Recession signal ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.