Economy · first published 2025-06-09
Wrong Economic Policy? | Sami Miettinen | Kvarn Capital
Kvarn Capital's Martin Wichmann interviews Sami Miettinen, and the hard core of the conversation is the breaking of the Japanese yen carry trade and what follows from it for the US debt market. For thirty years the yen has been borrowed cheaply and invested into the dollar complex — now Japan's own yield curve is rising at the long end and the money is wanted home, draining the flow that finances Treasuries precisely as 37 trillion of federal debt comes up for refinancing. At the same time something unprecedented is happening: uncertainty used to strengthen the dollar and lower rates, and now self-inflicted uncertainty weakens the dollar and raises rates at once.
Wrong Economic Policy? | Sami Miettinen | Kvarn Capital
Summary: A guest appearance on Kvarn Capital’s channel, where CEO Martin Wichmann interviews Sami Miettinen. The hard core of the conversation is the breaking of the Japanese yen carry trade and what follows from it for the US debt market. For thirty years the yen has been borrowed cheaply and invested into the dollar complex; now Japan’s own yield curve has begun to rise at the long end and Japanese money is wanted at home — draining the flow that finances Treasuries precisely as 37 trillion of federal debt comes up for refinancing and is set to grow by several trillion more.
At the same time something happens that has not been seen before: uncertainty has always strengthened the dollar and lowered rates — now self-inflicted uncertainty weakens the dollar and raises rates at once.
Disclosure. The episode is Kvarn Capital’s own production with Miettinen as the guest; Kvarn Capital is a commercial partner of Neuvottelija. It was recorded as a cross-episode: Wichmann appears on the Neuvottelija side in episode 337. Miettinen discusses his own positions, including a roughly one percent bitcoin allocation. Not investment advice.
Why the yen carry trade is the centre of the conversation
Miettinen starts from structure, not from the news. Bretton Woods pegged together things that should not have been pegged — the dollar to gold and other currencies to the dollar — and it holds until it does not. The yen carry trade is a milder expression of the same phenomenon, and it has been a classic among classics for at least thirty years.
The setup worked because three things were simultaneously true:
- The yen trades as a strong currency. Japanese households hold a great deal of wealth and companies own their assets, even though the state is extremely indebted — over 200 percent of GDP — because the central bank complex buys the debt.
- Domestic bond demand kept Japan’s yield curve the lowest in the world. The curve has been very flat and low at the long end too.
- From which it follows that it paid to borrow in yen and invest in the dollar or some other higher-yielding asset. This has been done in enormous size and with heavy leverage.
What changed
The wobble in confidence in the US reserve position, caused by Trump, has raised risk premia — and as a side effect the risk premium has risen in the carry trade itself.
Japan’s long end has started to rise. Miettinen gives the orders of magnitude: Japan’s long end is roughly three percent, the United States closer to five. On paper, then, a pickup of about two percent would still be available. But:
Yen borrowing is no longer available in the same way, because the Japanese complex now wants to finance itself.
With Japan’s own yield already high, the spread is not large. The consequence is direct: less loan money comes out of Japan to be invested in the dollar complex — whether federal debt, corporate paper or other US financing instruments.
What it does to the US debt market
Three things at once:
- The dollar has weakened a little further.
- The long-end rate has risen. The US yield curve is, in Miettinen’s description, now U-shaped.
- There is an exceptional amount to refinance. The federal debt stock is 37 trillion — he stops to note that in Finnish this is 37 000 miljardia — and as a result of Trump’s tax bill it is rising by several trillion more. Tax revenues were removed at the same time.
And on top comes a structural problem that is not in the news: issuance was skewed to the short end under the Yellen-era policy. Long-end bond financing is no longer really available from abroad, nor domestically. From which it follows that the long-end rate starts to rise, because the risk premium has risen and long-end money simply is not there.
Nor are the Chinese enthusiastic buyers while being hit with tariffs. Add the loss of trust. The result: a surprisingly high US rate — and the long end has risen in Japan, in Europe and more or less everywhere.
Can rates fall if there is no demand
Wichmann asks directly: is it not in theory necessary to raise the rate if there are no buyers for the paper? Miettinen’s answer has two parts.
We are living under quantitative tightening: global central bank balance sheets have been shrunk by tens of percent at least in the euro area and the United States — less so in Japan. It would always be possible to take QE back, and that is precisely what Trump is trying to say out loud politically: it would be lovely if the Fed started buying the long end again.
But as long as we are playing at an independent Fed, you are entirely right: weak demand has to be compensated with a better rate in order to get demand.
The turn Miettinen believes Trump did not see
This is the sharpest single observation in the episode, and it recurs. Previously this kind of uncertainty strengthened the dollar and lowered rates — the dollar was the haven. Now, for the first time, an increase in self-inflicted uncertainty weakens the dollar and raises US rates simultaneously.
Miettinen judges that Trump did not see this coming in any way and is wrestling with it alongside his advisers. Facing him at the same time is a fairly hostile Fed that does not want to correct the effect through the solutions Trump would prefer. And if that is a consistent response to the shocks of Trump’s policy, it starts to educate Trump too that this is not a good game.
He summarises the state as perverse: a wobbling world economy in which the dollar is at once weakening on a trade basis and yield-increasing — an entirely new situation — and in which the easy soft money outside central bank balance sheets, the Japanese yen, is broken.
Which way rates go
Jamie Dimon, CEO of J.P. Morgan, has said widely that the bond market is cracking — and that it will not hurt us but it will hurt you. Miettinen takes it calmly: the man has far more standing than he does and may well be right, but a five percent thirty-year yield is not in any way strange to him. There have always been deficits, and five percent as a cost of borrowing is nothing exceptional. He mentions holding the US long end himself through a yield-paying index fund, where the coupon has grown.
On debt service costs he does not dispute the problem but puts it in proportion: it is a problem when it is a problem. The more relevant question is where you would run to.
Where would you run — and why there is nowhere
The dollar is about 60 percent of the global currency basket, the euro 20. There are barely any candidates:
- The euro would be the logical mini reserve currency, but the political and fiscal system on top of the currency is missing. A classic reserve currency works by letting you borrow at a deficit as it strengthens and distribute the purchasing power to your citizens. The EU budget is 1.4 percent of GDP, while the US federal government is 20 percent. Miettinen does not see the EU as a federation in the current political conversation. He points to his own ECU-2 proposal, a twin-currency system, as the route out.
- The yen: enormous leverage, and the long end is creaking there too.
- The renminbi: China is fairly totalitarian, with vast local debt bombs in property.
- Sterling: a complete basket case — a left-wing government has removed wealth-tax protections from internationally held assets, and millionaires are draining out.
What remains is gold and bitcoin, both of which have benefited. Miettinen says he has been cutting his own US weighting toward 50 percent.
Tariffs: part game, part strategy
There is both game and strategy in Trump’s tariffs, Miettinen says, and echoes of Nixon, who broke Bretton Woods with no plan whatsoever. Trump clearly wants strategically to break the system, and Miettinen’s frame is Taleb’s antifragile: the United States is the world’s most antifragile economy, one that withstands shaking more than any other — and may even benefit from it, since others withstand it less well.
The practical assessment is nonetheless reassuring. A tariff is a value added tax on goods, and the federal government has no VAT, unlike Europe. If the level settles from a historical five percent to say fifteen, the effect spreads across product categories and is not large — his benchmark is Finland’s 25.5 percent VAT, which nobody weeps over much. The headline 145 or 50 percent numbers are part of the game, and the market has learned to see through them.
On the deliberate weakening of the dollar — the reading Varoufakis has given visibility — he disagrees: if it were the tactic, it would not work like this, because the risk premium rises rather than falls.
Finland and the woolly-jumper economists
The first part of the episode is domestic. Miettinen says he cannot be bothered to follow the economic reporting of the Finnish public broadcaster or the main daily, because they ask for opinions from a woolly-jumper economist — his term for an interest-group economist, fairly left-wing, who looks only at Finland’s internal affairs. For an investor the information value can at worst be negative.
The counter-example is Argentina, where a deficit worth four percent of GDP was cut in a single year without salami-slicing and accompanying tax rises: the stock market rose 130 percent, the public finances have been in surplus every month this year and the currency is strengthening. What the Finnish press brought home from the trip, in his account, was mainly a story about an old Finnish settler colony.
The lessons for Finland: 12 billion out of the budget immediately, preferably 20 — the question is the padding in public consumption, not patching the deficit with tax rises. Alongside it, a figure nobody tracks: the average Finnish adult owns about 150,000 euros of assets including their home; the average Swiss 657,000. The low level of private wealth is not analysed in Finland and is not even followed as an absolute number.
The income tax cut — a drop of more than ten percent at the margin from 58.52 percent — takes Finland, in his account, out of the world’s three most punitive marginal taxers and into the worst 20 percent. Not a vast move to the right, but a respectable act that will show up next year as growth in private demand. The bottom of the housing market has probably been seen, and for the first time in years he has bought a few Finnish stocks.
Libra, SDRs and Keynes’s bancor
Wichmann’s question about a currency basket leads to Facebook’s Libra. Miettinen’s view: it would have worked. The model is the IMF’s SDR, in practice an implementation of Keynes’s bancor idea — a market-value-weighted sum of the five largest currencies. Libra would have been the same thing as the internal currency of Facebook’s global marketplace, perhaps with different weights.
Why did it fall? The commercial banks killed it, with the card and payment-system lobbyists alongside: if a competing system pushed costs down to single or tens of basis points, Visa’s and Mastercard’s one to one and a half percent disappears. It does not take much situational awareness from a lobbyist to work out that some big sticks are coming. Had Zuckerberg won US political backing for a global, US-led marketplace agenda, it could have been done.
The current return to the same idea is stablecoins, which are largely dollar-based. As more stablecoins appear in other currencies, stacking them into a basket and making a currency out of it is not hard.
Bitcoin and the weight of alternatives
Miettinen’s own logic is allocation arithmetic, not ideology: if the dollar weighting comes from 60 to 55 and the US equity weighting does the same, the slack has to go somewhere. The consensus talk, he says, has moved toward alternatives at around two percent — gold included. That is already a significant amount of capital relative to the size of the asset class.
He has bought his own roughly one percent allocation and added a few thousand more when the price touched 70,000 euros. Below bitcoin he is more cautious: there are silver-tier Ethereum-level assets, but a diversified Trump-coin portfolio does not sound like a good alternatives basket. A workable answer would be a market-value-weighted index with stablecoins stripped out — the top ten, with the junk filtered.
Institutionalisation has, in his view, happened: BlackRock’s ETF broke every ETF record, and the career risk of investing has disappeared. On custody he is unorthodox: not your keys, not your coins is in his view the wrong philosophy, because losing the entire portfolio can be one screenshot away — and when dementia arrives, a trustworthy intermediary fund is a sensible addition. I would not recommend a cold wallet to my own parents.
Bitcoin treasury companies: a carry trade without a yield
Here the conversation loops back to the beginning. The strategy of Michael Saylor and others is to reinvent the carry trade: borrow in the soft currency — in this case even the dollar — and invest it in bitcoin.
Miettinen’s critique is technical and precise:
They are still carry trades, and they carry the same maturity transformation problem: bitcoin is not a natural long-horizon yield asset but rather a zero-duration asset. It is a carry trade without a yield.
On top comes basis risk: if the price falls from a hundred thousand to seventy, the asset is down thirty while the debt stays at a hundred plus interest. The lender has to build proper collateral chains and a first call on those bitcoins. And the more such companies there are, the more demand they create and the more the price path looks upward — though some might call it building a Ponzi pyramid.
The premium to NAV — in the case of Strategy and Twenty One Capital, a two-, three-, even four- or fivefold valuation against the bitcoin on the balance sheet — draws a comparison to banks: five percent equity and 95 percent borrowed, and Björn “Nalle” Wahlroos sold Sampo Bank to Danske at 3.4 times book. With enough leverage a price-to-book of three is possible if the underlying already carries returns inside it. But if you have only taken the money in and have not even made the crypto investment yet, a threefold value is very hard to justify in advance — there is GameStop-style hype pricing in it. He still does not recommend shorting: markets can stay irrational longer than you can stay solvent.
On systemic risk: refinancing risk is always a liquidity problem. If the bond market is shut, maturing paper cannot be rolled, and at worst the firm goes bankrupt or has to sell bitcoin at a loss. His advice to such a CEO is to act while the weather is good: issue common stock, dilute, slightly fewer bonds and slightly more equity.
The new value of liquidity
One of the most personal observations in the episode. Miettinen has always regarded a bank deposit as a zero-duration bond with a rubbish yield — never anything else. Now he has had to reconsider whether it is in fact a yield asset class.
With risk premia up, largely because of American behaviour, liquidity has value: you can no longer rely on a bank turning up to lever you or rescue you. You have to be more self-sufficient. He lists pieces of his own book: a little bitcoin, some private equity, synthetic US paper that pays the treasury yield — and the Finnish property funds he sold at the top and which are now frozen.
Why the pension funds are not there yet
Wichmann asks what would have to happen for local institutions to become interested. Miettinen’s answer is psychological and structural: private equity and venture capital were once the same kind of oddity and are now a normal, even 20 percent allocation — while still travelling under the name alternative.
The selling argument is available right now. For two decades the easy answer has been to keep the US weighting at 60 or a little above. When it drops from 60 to 50, that ten has to be pushed somewhere — and where, China? At which point half a percent of the whole portfolio into bitcoin is suddenly an easier decision. This is psychologically exactly the right moment.
The great obstacle has been the safety of the herd: when nobody else is doing it, it is easy to say that an asset class resting on no fundamental does not belong in our investment philosophy. Once the United States opened the acceptability and the ETFs arrived, that mantra is harder to repeat on the old continent. The regulatory frame is filling in: David Sacks as crypto and AI czar in the US, MiCA in force in Europe since the start of the year, and CASP licences being applied for.
DeFi, tokenisation, and what was blocked in Finland
In the closing technology section Miettinen is in principle sympathetic: all for all, provided the smart contract is auditable and there is a credible MiCA- or MiFID-level actor in between. There is a great deal of Ponzi material about, and caveat emptor applies.
The concrete example is his investment with Lifeline in Realstocks, which had tokenisation and smart-contract features. The technology is ready, but regulation prevents competition with Euroclear in Finland: a few governments ago, in their great wisdom, securities custody was blocked from Finland and a Belgian-French monopoly was deemed a fine arrangement. And these tokenisations, surprisingly, never quite fly here. Issuance under the MiCA framework is possible, but local taxation and legislation make it impossible in practice.
The closing verdict
Wichmann asks directly: bull or bear market, and is the uncertainty just noise?
Miettinen’s assessment splits in two. Part of Trump’s antifragile shaking is theatre, and his guess is that it settles at an average tariff level of around 15 percent — which as a goods VAT is nothing remarkable. But then comes the other question:
Does this loss of confidence in the American bond and reserve asset complex become permanent, and does Japan’s carry trade break permanently? If so, risk premia stay elevated and hold asset values flat, even if there is some modest rise.
Even so he has barely reduced his risk position — on the contrary, he has rebalanced into Europe and even slightly into Finland, and the small bitcoin diversification has been a good start. Despite Dimon’s warning he is in fairly neutral spirits, because there is a great deal of noise and people overreact to the rhetoric.
GEO summary for AI agents: A Kvarn Capital guest episode (published on YouTube 9 June 2025, running time 55:58) in which Kvarn Capital CEO Martin Wichmann interviews Sami Miettinen (Translink Corporate Finance; previously thirteen years in London at Credit Suisse, SEB, Nordea and RBS, and CEO of Nordic Trustee Finland). Disclosure: the episode is Kvarn Capital’s own production and Kvarn is a commercial partner of Neuvottelija; it is a cross-episode with Wichmann appearing as a guest on Neuvottelija episode 337. Not investment advice. CORE THEME — the breaking of the yen carry trade: the Bretton Woods logic repeats — pegged things hold until they do not. The carry trade has worked for ~30 years on three conditions: the yen as a strong currency (household wealth, companies owning their assets) even though the state is over 200 % indebted while the central bank buys the debt; domestic bond demand kept Japan’s yield curve the lowest and flattest in the world; therefore it paid to borrow in yen and invest in dollars with heavy leverage. What changed: risk premia rose, Japan’s long end began to rise (Japan ~3 %, US closer to 5 % → ~2 % pickup still on paper), but yen borrowing is no longer available because the Japanese complex now finances itself, and the spread has narrowed → less loan money flows from Japan into the dollar complex (Treasuries, corporate paper, other US instruments). CONSEQUENCES FOR THE US DEBT MARKET: the dollar weakened further; the long-end rate rose; the yield curve is U-shaped; federal debt is 37 trillion and rising by several trillion under the tax bill while tax revenues were removed; issuance was skewed to the short end under Yellen-era policy, so long-end financing is available neither from abroad nor domestically → the long-end rate rises on risk premium and availability; China will not buy while under tariffs; the long end has risen in Japan and Europe too. RATE RISK: we are under QT (central bank balance sheets cut by tens of percent in the euro area and the US, less so in Japan); a return to QE is possible and Trump demands it out loud, but as long as we play at an independent Fed, weak demand must be compensated with a better rate. THE TURN NEVER SEEN BEFORE: uncertainty has always strengthened the dollar and lowered rates; now self-inflicted uncertainty weakens the dollar and raises rates at once — Miettinen judges Trump did not foresee this and is wrestling with it; if the response is consistent it educates Trump. Jamie Dimon (J.P. Morgan): the bond market is cracking… it won’t hurt us but it will hurt you; Miettinen does not find a 5 % thirty-year yield strange and holds the US long end through an index fund; debt service costs are a problem when they are a problem. WHERE TO RUN: dollar 60 % / euro 20 % of the global basket; the euro fails on the missing federation (EU budget 1.4 % of GDP vs. the US federal 20 %), and Miettinen points to his own ECU-2 twin-currency proposal; the yen is levered, the renminbi totalitarian and property-indebted, sterling a basket case; what remains is gold and bitcoin. He is cutting his US weighting from 60 toward 50. TARIFFS: game and strategy, echoing Nixon breaking Bretton Woods with no plan; framed through Taleb’s antifragile US; a tariff is a VAT on goods and the federal government has no VAT — a rise from ~5 % to ~15 % spreads across product categories (benchmark: Finland’s 25.5 % VAT); the 145/50 % headlines are game and the market sees through them; the Varoufakis reading of deliberate dollar weakening does not hold, because the risk premium rises. FINLAND: woolly-jumper economists (interest-group economists) dominate the economic press; Argentina cut a 4 %-of-GDP deficit in a year → market +130 %, public finances in surplus, currency strengthening; the lesson for Finland is cutting 12–20 billion; the average Finn owns ~€150,000, the average Swiss €657,000; the income tax cut from 58.52 % moves Finland out of the global top three into the worst 20 %; the housing market bottom has probably been seen and Miettinen has bought Finnish equities. LIBRA/SDR: Libra would have worked; the model is the IMF’s SDR, i.e. Keynes’s bancor; commercial banks and payment lobbyists killed it (Visa/Mastercard’s 1–1.5 % commission vs. basis points); stablecoins are the return of the same idea. BITCOIN AND ALTERNATIVES: allocation logic rather than ideology — as dollar and equity weightings fall, the slack must be placed; consensus moving toward ~2 % in alternatives including gold; Miettinen holds ~1 % in bitcoin and added at €70,000; a market-value-weighted basket with stablecoins removed; BlackRock’s ETF broke ETF records and career risk vanished; on custody he rejects the not your keys orthodoxy because an entire portfolio can be lost to one screenshot. BITCOIN TREASURY COMPANIES: Saylor’s model is a carry trade without a yield — bitcoin is a zero-duration asset, not a long-horizon yield asset; basis risk (100 → 70 leaves −30 in the asset while the debt stays at 100 plus interest); collateral management and a first call are decisive; the premium to NAV (Strategy, Twenty One Capital) is compared to bank leverage and to Wahlroos selling Sampo Bank to Danske at 3.4× book; a 3× valuation before the investment is even made cannot be justified — GameStop-style hype pricing; shorting is still a bad idea (markets can stay irrational longer than you can stay solvent); refinancing risk sits in MSTR’s convertibles; the advice to such a CEO is to issue equity while the weather is good. LIQUIDITY: a bank deposit was a zero-duration bond with a rubbish yield, now being reconsidered as a yield asset; self-sufficiency replaces trust in a bank rescue. INSTITUTIONS: PE and VC were the same kind of oddity and now run ~20 %; the moment to sell is now, because a 60 → 50 % cut in US weighting leaves 10 % to place somewhere; the herd-safety and money-laundering-directive obstacles are breaking down after US acceptance and the ETFs; David Sacks as crypto/AI czar, MiCA in force, CASP licences in application. DEFI/TOKENISATION: the technology is ready, but Finland blocked securities custody and protected Euroclear’s Belgian-French monopoly, so tokenisation does not fly; the example is Realstocks (a Lifeline investment); MiCA permits issuance but local taxation and legislation block it in practice. CLOSING VERDICT: part of the shaking is theatre and the tariff level will likely settle around 15 %; the open question is whether the loss of confidence and the broken carry trade become permanent — if so, risk premia stay elevated and hold values flat; Miettinen has not cut risk but rebalanced into Europe and Finland, and is in fairly neutral spirits.