suppose they began to worry about the health of the Japanese currency, the yen, in which bonds are denominated and in which the interest is paid. In such circumstances, the price of the bond would drop as nervous investors sold off their holdings. Buyers would only be found at a price low enough to compensate them for the increased risk of a Japanese default or currency depreciation.
In "The Ascent of Money," Niall Ferguson discusses the potential concerns surrounding the Japanese yen, which is essential since it is the currency in which Japanese bonds are denominated. If investors start to feel uneasy about the yen's stability, particularly regarding its health and the risk of default, it could lead to a significant sell-off of these bonds. This would result in a drop in bond prices as the market reacts to the heightened risk.
As investors seek to mitigate their losses, they may only show interest in purchasing bonds at much lower prices that reflect these risks. This dynamic underscores how currency instability and fears of default can ripple through financial markets, influencing investor behavior and bond valuations significantly.
