Isn't Japan's debt something like 230% of GDP?  Lets assume it is and like most sovreigns it is in a mixture of outstanding maturities.  Lets also assume the weighted average is 4.5 years so 18% comes due each year.  Roughly 41% of GDP comes due every year.  Japan current year deficits are 9% of GDP so to avoid rising interest rate the Central bank would need to increase the money supply by roughly 50% of GDP annually.   Now most countries have a very low velocity right now (US is ~1).  If Japan is like the rest of the world you are essentially talking about 50% increase the money supply year over year.

I would call that hyperinflation wouldn't you?

I believe Bass is betting both on interest rate rise and on currency devaluation.  I don't know which instruments he uses for this though, if somebody has the answer, feel free to share.

I think 50% inflation for several years would severely impact the psychology of the population and lead to hyperinflation.

I think you misunderstood my point.  The central bank CAN't print that much money, not without causing massive economic chaos.  Think about multi-year financing (like for construction).  What interest rate do you put on a 30yr mortgage when inflation could be 50% annually.  The simplistic answer is just make it a comfortable risk premium like say 5% in real terms making the rate 55%.  However 50% is just a wild ass guestimate.  What if inflation is 70% for a decade and the borrow decides to pay the note off with increasingly worthless currency they are flooded with?  Oops you (as the lender) took massive risk and lost 50% of your principal (in real terms).  The reverse is also true.  Someone with a 50% mortgage would be betting their income will be rising 50% in nominal terms.  What if the central bank tightens.  Suddenly the interest payment overwhelm the borrower.   Now apply that kind of chaos to all aspects of society from public works (can you imagine floating a muni-bond in a 50% inflation environment) to retirement (try not to outlive your savings.  You only got $20 trillion yen?  Hope you don't live too long).

Simply put no modern economy is going to function with that level of monetary expansion.


TL/DR version:
Premise 1 - Interest rates will rise unless central bank continues to ease
Premise 2 - Japan debt is so high relative to GDP and there is so little outside demand for its debt that to ease would require 50%+ annual monetary expansion
Premise 3-  The central bank will be unable to monetize all Japan's debt.

Thus rate will rise as that supply comes flooding into limited demand.  Higher rate = higher demand and an equilibrium will be reached.


Longer term I see only three possible "outs" for Japan
A) Integrate.  Ditch 5,000+ years of xenophobia, open ports to (young) immigrants in an attempt to get some meaningful gowth in real (adjusted for inflation) terms.  The bad news is old habits are hard to break.
B) Implode.  Become the Greece of Asia.  The bad news is the limited natural resources and bad demographics mean the road out is going to be bad.  Maybe they emerge as Vietnam 2.0 in three or so decades.
C) Expand.  War looked like a good idea in 1939 maybe it will again in 20x9.  Restore the pan-pacific empire via military expansion.  Natural resources, wealth, land is available for those able to take it.  The bad news is China has a four decade head start and hasn't quite forgotten the atrocities of the last world war.

Yes, agreed that they'll have to end up jacking up the money supply by about 500%. But my point is that if they do that without letting bond rates float, there'll be no feedback-loop that requires exponential printing; instead, a period of high linear printing is required. Yes, 500% money supply inflation is horrible, but doing so over a number of years, and then following up with 10%/yr to cover ongoing deficits is not hyperinflation. So the Yen will depreciate A LOT, but not like the disaster scenario many are predicting. And I still don't see any mechanism for JGB yield increases assuming the BoJ is committed to large-inflation (which it has to be, and has indicated strongly with their dozen rounds of QE over the last decade).

So the question still stands: Why is Bass betting on higher rates? What does he think the mechanism is? I do not think he thinks the BoJ will fail to buy the debt. In his own investor letter he points out that the BoJ is currently buying 56% of new issues. So it's clear to him they're willing to be the entire market...

Maybe you are right, maybe they will just have big inflation for a number of years.
On the other hand, no government ever choses hyperinflation, it's just that when inflation gets too bad, people start to inform themselves and realise the shaky belief-basis that fiat currency value relies on.  If enough people decide they don't want that risk and get rid of their cash as soon as they can, you have hyperinflation, no matter what central banks decide.


Consider it a hedge against the Yen depreciation trade.

Bernanke also said that US housing never went down on a nation-wide basis, look how that turned out...  Your argument is more rational however, as it excludes a mechanism (and relies on the history of all countries, instead of one), but I still do not see it as a foolproof protection against hyperinflation.  If enough people lose confidence, money velocity will keep accelerating, and you'll have hyperinflation.  



Yes, that was what I meant.