**Weekly Report “Sanae Shock: Japan Has Entered an ‘Infinite War of Attrition’”**

 

**Weekly Report

“Sanae Shock: Japan Has Entered an ‘Infinite War of Attrition’”**

Sanae Shock: Japan Has Been Drawn into an “Infinite War of Attrition”
— Market Psychology Dominated by Noise × Fiscal Year-End Supply–Demand × The Finite Game of Great-Power Politics —
 

 

March 29, 2026
Tomo Nakamaru
Former World Bank Economist

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1. Market psychology is no longer driven by “information” but by “noise”

What moved markets last week was neither economic indicators nor corporate earnings. It was the amplification of noise.

As Fischer Black explained, markets contain three elements:

• Information (genuine signals)
• Noise (random disturbances)
• Fake (intentional falsehoods)

In 2026, these three have become entangled in the worst possible way.

Noise that dominated last week’s markets

• Disinformation surrounding Trump’s attack on Iran
• Exaggerated reporting on the closure of the Strait of Hormuz
• Politically motivated leaks about Japan’s fiscal situation
• Fragmented “crisis” narratives spreading on social media
• AI algorithms generating mislearned trading signals

Together, these pushed the market into a phase where it reacts not to information, but to fear.

Fear moves markets faster, deeper, and more brutally than information.
The result:

A triple decline in stocks × yen × bonds.

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2. March 30–31: The worst possible timing after breaching crisis lines

Japan’s market is entering an extremely unusual fiscal year-end supply–demand environment.

(1) Friday, March 27 was the final day for “year-end dividend capture”

• Many investors bought stocks to secure dividend rights
• This made stock prices appear artificially high

In other words:

The Nikkei falling only 1% below its 200-day moving average may have been window dressing.

Given that the Nasdaq is 6% below its 200-day line,
a cold-eyed view of the market would say:

The Nikkei should be another 5% lower.

(2) March 30–31: “Ex-dividend drop” + “year-end rebalancing”

This is the most dangerous combination for markets.

• The Nikkei will automatically fall by several hundred points due to ex-dividend adjustment
• GPIF, insurers, banks, and foreign investors will sell for rebalancing
• Yen depreciation and rising rates may trigger additional bond selling

Fiscal year-end supply–demand could become the trigger that accelerates the Sanae Shock.

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3. Crisis-line breaches: The structure of “Japan selling” is now complete

Last week’s market data signals not a mere correction but the ignition point of a structural crisis.

(1) Nasdaq: 6% below the 200-day moving average

Global risk assets have shifted into “escape” mode.

(2) Nikkei 225: 1% below the 200-day line (effectively −6%)

Dividend-capture window dressing likely distorted the numbers.

(3) USD/JPY at 160 (structural danger line)

A negative spiral has begun:

Yen depreciation → import inflation → rising interest rates → JGB selling → further yen depreciation

(4) WTI at $100 (a fatal blow to Japan’s economy)

Higher energy import costs → current-account deficit → accelerated yen depreciation.
In real terms (deflated by US CPI), the historical peak is around $200.

(5) Japan 10-year yield at 2.4% (early signs of a JGB market revolt)

Doubts about fiscal discipline are surfacing.

The simultaneous occurrence of these signals leaves only one conclusion:

The Sanae Shock has reached the crisis threshold.

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4. Trump’s attack on Iran and Sanae Takaichi’s surprise dissolution share the same structure

There is a key to understanding this week’s market turmoil.

(1) Both were surprise moves aimed at “winning a finite game”

• Trump: attacking Iran for domestic political gain
• Takaichi: dissolving parliament to boost approval ratings

Both are tactics designed to maximize short-term victory.

(2) But state governance is inherently an “infinite game”

• Fiscal sustainability
• Market confidence
• Diplomatic stability
• Stability of citizens’ livelihoods

All depend on long-term continuity—the infinite game.

(3) Victory in the finite game becomes the seed of defeat in the infinite game

• Trump’s attack → higher oil prices → global inflation → Japan’s current-account deterioration
• Takaichi’s surprise dissolution → loss of fiscal discipline → JGB selling → rising interest rates

The result erupted last week as:

Japan selling (crisis-line breach).

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5. Diagram: Great-power nationalism always fails in the infinite game

Great-power behavior
→ Displays of prestige (military buildup, attacks, surprise moves)
↓
Short-term victory (finite game)
→ Higher approval ratings, temporary market euphoria
↓
Long-term costs
→ Fiscal deterioration, currency instability, JGB selling
↓
Market revolt
→ Stock decline × yen decline × bond decline (triple decline)
↓
Defeat in the infinite game
→ Loss of national sustainability

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6. Sanae-nomics accelerates defeat in the infinite game

Sanae-nomics attempts to recreate Abenomics’ double-down strategy (monetary easing + fiscal expansion) under inflationary conditions.

This is a classic pattern:

Pursuing finite-game victory (short-term stimulus)
→ Triggering infinite-game defeat (fiscal collapse, currency instability).

Key elements include:

• Rapid expansion of defense spending
• Opaque funding sources
• Interest-rate suppression
• Policy reduced to social-media popularity contests
• Lack of policy explanation

Markets have already begun to conclude:

“Japan has abandoned the rules of the infinite game.”

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7. Conclusion: Japan has been drawn into an “infinite war of attrition”

Last week’s market behavior is a warning:

Japan has lost the sustainability required for the infinite game and has entrusted national governance to short-term finite-game victories. The result is a steady erosion of long-term stability.

The three most important indicators for Japan going forward are:

• Long-term interest rates
• The yen exchange rate
• JGB supply–demand dynamics

Great-power nationalism always fails in the infinite game.
And the cost of that failure concentrates on the most vulnerable nation.
Today, that nation is Japan.

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**Appendix: The “New Three Arrows” to Accelerate Future Creation

— The Only Path to Prevent a Volcker-style Shock**

A supply shock cannot be overcome through monetary easing or fiscal expansion.
What is required is an integrated approach combining demand restraint and supply enhancement.

Policy	Objective	Civilizational Significance
First Arrow: Monetary Normalization	Gradually move real interest rates into positive territory; anchor inflation expectations; prevent violent rate hikes.	Restore central bank credibility; exit discretionary policymaking.
Second Arrow: Abolish the Consumption Tax	Deliver a positive supply shock to revive domestic demand and reduce export dependence.	Create a Japanese model for overcoming supply shocks.
Third Arrow: Abolish Industrial Policy	Eliminate state-created vested interests; promote creative destruction in markets.	A civilizational shift from great-power nationalism to small-nation sustainability.