--- title: "Is Sanae Takaichi Poised to Replay the UK's 'Truss Moment'?" type: "News" locale: "en" url: "https://longbridge.com/en/news/295728048.md" description: "Bill Campbell of DoubleLine Capital draws parallels between Japan's current fiscal vulnerabilities and the UK's 'Truss Moment,' warning that intervention to curb yen depreciation is merely a temporary measure. He points out that loosening fiscal paths, debt expansion, and cuts to the consumption tax are exacerbating risks, with the market cost of policy errors potentially materializing rapidly" datetime: "2026-08-13T01:13:58.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/295728048.md) - [en](https://longbridge.com/en/news/295728048.md) - [zh-HK](https://longbridge.com/zh-HK/news/295728048.md) --- # Is Sanae Takaichi Poised to Replay the UK's 'Truss Moment'? Japan's fiscal vulnerabilities continue to simmer, with US-Japan joint intervention criticized as treating symptoms rather than the root cause, raising market alarms about the cross-border spread of risk. The yen has recently depreciated sharply, triggering coordinated intervention by authorities in both the US and Japan. However, Bill Campbell, Head of Global Sovereign and Emerging Markets at DoubleLine Capital, views this intervention as merely a "band-aid on a larger wound"—Japan's true problem lies in the fundamental loosening of its fiscal trajectory. In the latest episode of DoubleLine's "Perspectives," Campbell directly **compares Japan's current situation to the UK gilt crisis triggered by then-Prime Minister Liz Truss in 2022, warning that in the current inflationary environment, the market cost of policy mistakes will arrive much faster than in the past.** ## Intervention Effective, But Only a "Band-Aid" During the program, host and Client Portfolio Manager Jeff Probst first posed the question: "Just a few days ago, Japan had to intervene in the foreign exchange market. What do you think is the fundamental driver behind the overall weakening of the yen?" Campbell responded that this intervention was a coordinated effort by US and Japanese authorities, with timing chosen quite precisely—leveraging the window when Federal Reserve Chair Powell released dovish signals and the US dollar weakened, jointly pushing the USD/JPY pair back from above 163 to around 155. Campbell stated: > From a tactical perspective, this was a significant bilateral intervention worth noting... but historically, attempts to stop currency depreciation are often futile; if mishandled, they only deplete precious foreign exchange reserves for nothing. He further pointed out that **US Treasury Secretary Bessent intervened quickly due to concerns that if Japan were forced to sell US Treasuries to buy back yen, the pressure would transmit directly to the US Treasury market. To this end, the Federal Reserve specifically provided a repo facility, allowing Japan to exchange its held US Treasuries for US dollars, thereby avoiding direct selling.** "But I believe this is only a temporary solution, a band-aid on a larger wound," Campbell said. "Japan's massive debt stock continues to expand, and the sustainability of its fiscal outlook remains questionable." ## Loosening Fiscal Anchor, Sharp Consumption Tax Cuts Add Fuel to the Fire Campbell emphasized that the yen's depreciation and the rise in Japanese Government Bond (JGB) yields are essentially a vote of no confidence by the market in Japan's fiscal policy. There are two root causes: **First, the quiet loosening of the fiscal anchor.** He noted that the medium-term economic plan (the "Honebuto" Basic Policies) recently released by the Japanese government changed the fiscal anchor from "controlling the fiscal deficit target" to "stabilizing the debt-to-GDP ratio." This shift appears mild but is actually dangerous. Campbell explained: > As long as nominal growth is positive, the debt-to-GDP ratio can continue to grow without addressing fundamental spending issues... This does not truly resolve the fiscal problem. **Second, a sharp cut in the consumption tax.** To advance its growth agenda, the Sanae Takaichi administration is pushing through the Diet to drastically reduce the consumption tax from the current 8% to 1%, scheduled to take effect in April 2027. Campbell pointed out that this will bring additional fiscal costs, further exacerbating pressure. Furthermore, the initial draft of the "Honebuto" Basic Policies included language requesting the central bank to coordinate with the government's growth targets and strengthen coordination, which the market interpreted as potentially undermining the Bank of Japan's independence. "When you are trying to stabilize the currency, this is a very dangerous approach," Campbell said. Although this language was later revised, the market has become alert, and calls for the Bank of Japan to raise interest rates in this environment are currently rising. ## Warning of the "Truss Moment": Higher Cost of Policy Errors in an Inflationary Environment Probst subsequently asked: "In your latest paper, you mentioned the UK's 'Truss Moment'—in 2022, UK long-end interest rates rose by about 100 basis points in a short period, the currency depreciated significantly, and the policy had to be quickly withdrawn. Is Japan currently in or approaching that moment?" Campbell's answer was direct: "It feels very similar." In 2022, the Truss government announced tax cuts for high-income earners, planning to widen the fiscal budget deficit. The result was intense selling in the UK gilt market, with long-end yields soaring by about 100 basis points in a very short time, accompanied by a sharp drop in the pound, ultimately forcing the Bank of England to intervene and prompting Truss to quickly withdraw the policy. "Truss discovered this very quickly," Campbell said, **"When the UK announced tax cuts for the highest income groups and expanded the fiscal deficit, the UK gilt market suffered heavy selling, eventually requiring intervention from the Bank of England and a rapid withdrawal of the policy."** Campbell believes there is a deeper structural shift behind this event: "We have left the deflationary environment and entered an inflationary one. **In an inflationary environment, whether it is monetary or fiscal policy errors, they will face more direct and immediate market reactions.**" Even more alarming is the transmission effect. Campbell emphasized that the Truss episode was not an isolated issue for the UK—pressure from rising interest rates and currency depreciation spread to other developed markets. He believes this is one of the reasons why Bessent and US authorities were willing to intervene so quickly this time, coordinating with Japanese authorities. Campbell said: > In the current trend of higher inflation, fiscal and monetary policies need to be pursued in a more conservative manner. These mistakes will not only have ripple effects in Japan but also rapidly across all developed markets—the possibility that events in one market affect others, including the US Treasury market, cannot be underestimated. Japan is one of the largest foreign holders of US Treasuries. If fiscal pressure forces Japan to sell US Treasuries to buy back yen, the US Treasury market will bear the brunt. His conclusion is that fixed-income investors can no longer view these as isolated, single-country stories. Fiscal and monetary policies in developed markets are increasingly interconnected, and investors must closely monitor international developments, not just focus on the Federal Reserve. Risk Disclosure and Disclaimer The market carries risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. 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