What do Tokyo and Nuuk have in common? They are the capital cities of Japan and Greenland. They are the two epicenters of the shocks that hit stock and bond markets worldwide today. In Tokyo, bond yields are soaring, suggesting that a debt crisis may be underway. In Nuuk, the locals are siding with Denmark in their opposition to President Donald Trump's plan to acquire Greenland "one way or another." This development just adds to the list of geopolitical tensions driving precious metals prices to record highs. The situation was exacerbated when eight NATO countries deployed troops to Greenland for joint military exercises, prompting Trump to threaten new tariffs on those countries. In other words, last year's Trump Tariff Turmoil is continuing in 2026.
Let's have a closer look at what is happening in and around Tokyo and Nuuk:
I. Will what happens in Tokyo stay in Tokyo?
Japan's government debt crisis is certainly pushing bond yields higher (chart). However, we don't expect that it will cause a Lehman-like global financial crisis. Nevertheless, Japan's Bond Vigilantes are sending a clear message to governments worldwide about the need for fiscal discipline.
The problem in Japan is that the Bank of Japan has been trying to normalize monetary policy by raising its main policy rate since early 2024. However, inflation remains stuck around 3.0%, well above the BOJ's 2.0% inflation target and the current policy rate of 0.75% (chart). The BOJ is tightening too little, too late, because the economy is weak, prompting the new government to push for fiscal stimulus. That will widen Japan's government deficit, adding to the record public debt. The Bond Vigilantes are protesting by driving bond yields higher.
Rising Japanese yields seem to have put upward pressure on yields in other developed countries, which also have excessively high government debt-to-nominal-GDP ratios (chart). The US bond yield has been rising as the odds of further Fed rate cuts have decreased. In addition, the Bond Vigilantes may anticipate that the Supreme Court will rule that Trump's tariffs are unconstitutional, thus reducing government receipts from customs duties. Furthermore, on January 7, Trump posted on Truth Social that he would ask Congress to raise the 2027 defense budget from the already‑approved $901 billion to $1.5 trillion, calling it the Dream Military and citing troubled and dangerous times.
Despite the above, we still expect the 10-year US Treasury bond yield to trade between 4.25% and 4.75% for most of this year. We expect US inflation to fall to 2.0% and that the Treasury will issue more bills if necessary to avert higher bond yields.
II. Is the latest geopolitical crisis another buying opportunity?
In the past, geopolitical crises often created buying opportunities in the US stock market (chart). We think the latest pullback won't last long because better-than-expected earnings during the current Q4-2025 earnings reporting season will remind investors that earnings remain resilient, reflecting a resilient economy. We also expect that the Greenland issue will be resolved. (Perhaps the Danes will be able to keep it as long as they rename it Trumpland and give Trump a peace prize.)
Meanwhile, owning precious metals, base metals, and rare earth minerals should continue to be a very good hedge against mounting geopolitical risks (chart)
These materials are all essential for military equipment produced by the defense industry, which also remains a great hedge against mounting geopolitical risks (chart).
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