Trump Bond Sell-Off Should Scare Central Banks

``... a stress test is coming if bond markets continue to sell off in anticipation of Trump's assumed pro-growth policies... The result is that, sooner or later, markets are likely to challenge the BoJ's pledge to hold the 10-year rate at zero... Japan is set up for a potential hyperinflationary scare on a surge in velocity if inflation expectations suddenly soar precisely because of the extent to which the monetary base has grown after so many years of ultra-easy monetary policy. Japan's monetary base has tripled from 135 trillion yen, or 28 percent of gross domestic product in March 2013, when Kuroda became BoJ governor, to 414 trillion yen, or 82 percent of GDP as of October. This surge in narrow money should be seen as the equivalent of the piling up of kindling wood on a fire. But, to continue the analogy, the kindling wood is only set alight if velocity takes off. For now, velocity, or the rate at which the money supply turns over, has declined since the 2008 financial crisis in the U.S., Japan and Europe despite the implementation of unorthodox monetary policy; though bond markets have started to worry that Trump's policies, such as the infrastructure spending plan and a tax-amnesty deal with corporate America to encourage the repatriation of an estimated $2.5 trillion held offshore, might cause a surge in velocity.''