Japan has been mired in an economic morass for decades. The nation recently announced its GDP shrank at a 1.4-percent annualized rate in the fourth quarter of 2015. Indeed, Japan is flirting with its fifth recession in the last seven years and has suffered negative growth in two of the last three quarters. If debt costs were to surge from 15 percent to 60 percent, the Japanese economy would move from a perpetual recession to a devastating depression in short order.
It is a good bet that central banks will eventually be able to achieve their inflation targets — they have historically always been able to do so. They may resort to circumventing the banking system by directly purchasing newly issued government debt if a zero interest-rate policy, negative interest-rate policy and quantitative easing don't satisfy their inflation goals.
And this is why central banks are guaranteed to fail miserably in their effort to produce viable growth through inflation. Once inflation targets are reached, they will have to begin winding down purchases of sovereign debt or risk pushing prices out of control. If not, it would lead to utter currency destruction, soaring yields on all fixed income assets and economic chaos. Therefore, they will be forced to switch from deflation fighters to inflation fighters.