What if China lands forces on the Japan-administered Senkakus?
China landing forces on the Japan-administered Senkakus invokes the US-Japan treaty: VIX +15, Nasdaq -6, defense primes bid, JPY and Japanese equities the regional focus. Rhymes with the 2012 Senkaku nationalization crisis, which triggered Chinese boycotts of Japanese goods and a sharp Japan-China trade chill. Transmission: Japanese autos/electronics exposure to China demand is the second-order hit. Forward angle: an actual landing (vs. 2012's diplomatic spat) directly tests Article 5 over the islands, so the entanglement risk is far more market-relevant now.
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The butterfly cascade
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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. China lands forces on the Japan-administered Senkakus, invoking the US-Japan security treaty. The trigger decomposes into signed root‑shocks — Defense spending ▲ · Geopolitical risk ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.