April Monthly Report:

The Coming Collapse of the Reiwa Bubble and the Approaching Volcker Moment

— The Era of a “Global System of Simultaneous Equations” Driven by Great-Power Nationalism, Military Expansion, and Fiscal Dominance

0. What This Morning’s Bloomberg Headlines Reveal About the Direction of the World

Two major Bloomberg headlines this morning clearly signal where the global economy is heading.

1) The Trump administration requests USD 1.5 trillion in defense spending for FY2027
A 50% increase from USD 1 trillion in FY2026.
Of the USD 2.2 trillion in discretionary spending, non-defense expenditures will be cut by 10%.
→ A textbook case of military-first policy, welfare suppression, and fiscal dominance.

2) Trump warns Iran: “48 hours left”
“Do you remember the 10-day grace period? Time is running out.”
→ A deliberate political move to heighten Middle East supply shock risks.

These two developments are not coincidental.
The United States, Japan, and Russia are simultaneously shifting toward a regime of
Great-Power Nationalism × Military Expansion × Fiscal Dominance,
creating a global system of simultaneous equations that mutually amplifies inflation and resource prices.

**1. Japan: Fiscal Dominance Amid Yen Depreciation, Inflation, and Labor Shortages

— The Limits of Sanae-nomics**

■ The Triple Burden: Weak Yen, Inflation, and Labor Shortages

The yen is nearing the 160 range
Import-driven inflation has become entrenched
Labor shortages are structural, creating severe supply constraints

Under these conditions, continued demand stimulus raises prices, not output.

■ Yet Fiscal Stimulus Continues Unabated

Supplementary budgets
Tax cuts
Public investment
Stock market support measures

→ This has entrenched fiscal dominance, where fiscal policy effectively controls monetary policy.

■ The Bank of Japan cannot raise rates even if it wants to

Rate hikes → exploding debt-servicing costs → fiscal crisis risk
Result: The BOJ is trapped in a state of “signaling rate hikes but unable to act.”

This mirrors the Italian-style fiscal dominance of the 1970s.
Sanae-nomics is now confronting the limits of a high-pressure economy.

**2. The United States: The Grand Contradiction of Trump 2.0

— An Impossible Equation of Military Expansion × Demands for Rate Cuts**

■ USD 1.5 trillion in defense spending: an unprecedented military expansion

A massive demand shock stimulating defense industries, employment, and energy sectors.

■ The “48-hour warning” to Iran

This heightens Middle East supply risks and pushes up WTI crude prices.

■ Yet the administration demands rate cuts from the Federal Reserve

Military expansion → larger fiscal deficits → stronger inflationary pressure
Tariff hikes → higher prices
Shale expansion → higher energy demand

Despite all this, the administration pressures the Fed to cut rates to support stock prices.

■ The impossible equation of Trump 2.0

Accelerating inflation while demanding rate cuts.

This is a replay of the 1970s pattern:
“Aggressive fiscal expansion × high inflation × political pressure on the central bank.”
The endgame is the same: a Volcker Moment—a sharp, forced rate hike.

■ And indeed, upstream inflation is already accelerating

U.S. PPI—upstream of CPI—was already rising +0.7% MoM, 8.7% annualized in February,
before the Trump–Iran escalation.
Inflation is already approaching double digits.

3. Russia: A Resource-Fueled Great-Power Strategy for a Long War

Higher crude oil and natural gas prices strengthen Russia’s fiscal position
Energy exports continue despite sanctions, via rerouted channels
Revenues flow directly into financing the invasion of Ukraine

Russia is operating a self-reinforcing loop:

High resource prices → greater fiscal capacity → military expansion → geopolitical risk → higher resource prices

**4. The Real Possibility of a Third Oil Crisis

— Not Just WTI Above USD 110, but a Real USD 200 Scenario**

A crucial fact must be emphasized:

**The highest real WTI price in history was not during the First or Second Oil Shocks,

but during the 2008 U.S.–European housing bubble (real USD 202).**

This reveals a structural shift in the global economy.

■ Real WTI in 2008: USD 202

Higher than during the 1970s oil shocks
Occurred not during war, but during a financial bubble
Demand-driven resource inflation is more persistent than supply shocks

■ Today, three shocks are occurring simultaneously

Demand shock: U.S. military expansion and fiscal stimulus
Supply shock: Iran and Middle East instability
Geopolitical shock: Russia’s prolonged war and energy weaponization
Stockpiling: China
Import inflation: Japan due to yen depreciation

→ A real WTI price of USD 200+ is entirely plausible.

5. The Ball–Nakamura Three-Equation Difference Model and the Coming “Global Volcker Moment”

This report uses a simulation based on the following assumptions:

Demand shock: +5%
Supply shock: +10% (inflation shock)
2026: Policy rate unchanged (central bank does nothing)
2027 onward: Policy rate follows the Taylor Rule

Variables:

y: output gap
π: inflation
r: real interest rate

5-1. Simulation Path

Year	y	π	r
2026	0.0	10.0	0.0
2027	5.0	10.0	7.5
2028	-3.5	12.0	4.3
2029	-7.1	10.6	1.8
2030	-7.4	7.8	0.2
2031	-6.1	4.8	-0.7
2032	-4.2	2.4	-0.9
2033	-2.5	0.7	-0.9
2034	-1.1	-0.3	-0.7
2035	-0.2	-0.7	-0.5
2036	0.3	-0.8	-0.2

■ 2026: The central bank does nothing despite the shock

Inflation at 10%, real rate at 0%.
→ This delay triggers a second wave of inflation.

■ 2027: Taylor Rule kicks in, rates surge

Real rate jumps to 7.5%.
But it is too late—inflation re-accelerates to 12% in 2028.

■ 2028–2032: Deep recession and gradual disinflation

Output gap falls to around –7%, inflation declines from double digits.

■ 2033–2036: Long stagnation

Inflation turns negative, real rates remain negative.
→ A prolonged stagnation following a high-pressure economy.

Crucially,
this dynamic could now unfold globally, simultaneously.

6. The Collapse of the Reiwa Bubble: A Historically Unprecedented Crash Is Likely

■ External shocks

U.S. Volcker Moment
Third Oil Crisis
Persistent geopolitical risk

■ Internal vulnerabilities

Yen depreciation, inflation, labor shortages
Fiscal dominance
Aging population and declining potential growth

■ Stock prices are the “final fireworks” of a high-pressure economy

A market inflated by fiscal stimulus and yen depreciation is extremely fragile.

→ The collapse of the Reiwa Bubble could exceed 1990, 2008, and 2020.

Executive Summary (One-Page Digest)

**The world has entered a global system of simultaneous equations driven by

Great-Power Nationalism × Military Expansion × Fiscal Dominance × Resource Inflation**

Trump administration: USD 1.5 trillion defense request, “48-hour” warning to Iran
Japan: fiscal dominance amid yen depreciation and inflation
Russia: resource revenues funding a long war
Middle East: chronic supply shock risk

Real WTI hit USD 202 in 2008

→ Today, war × bubble × military expansion × fiscal dominance are occurring simultaneously
→ A real WTI price above USD 200 is entirely plausible

Ball–Nakamura model signals a “Global Volcker Moment”

Peak high-pressure economy
Re-acceleration of inflation
Delayed rate hikes
Deep recession
Long stagnation

The Reiwa Bubble may face a historic collapse

External shocks: U.S. rate hikes, Middle East crisis, resource inflation
Internal weaknesses: yen depreciation, fiscal dominance, supply constraints
Stock prices represent the final stage of overheating

Conclusion: A Civilizational Lens Reveals the True Structure of Global Change

Great-power nationalism
Military expansion
Fiscal dominance
Resource inflation
High-pressure economies
Volcker-style adjustment
The collapse of the Reiwa Bubble

All of these form a single “global system of simultaneous equations.”
This report suggests the likely outcome of the world’s accelerating great-power trajectory.

Saturday, April 4, 2026