Japan beware, crashes have a habit of bringing regime change.

By Ambrose Evans-Pritchard

LONDON, England – May 18, 2009 - Et tu Tokyo? If Washington is counting on Japan to act as last-resort buyer of U.S. dollar bonds, it may have to think again. Masaharu Nakagawa, finance chief of the Democratic Party of Japan (DPJ), told the BBC that his country should not purchase any more U.S. debt unless issued in yen as "Samurai" bonds, akin to "Carter bonds" in 1978.

This is the sort of petulance that tends to emerge in the late phase of slumps (1840s, early 1930s), when mass lay-offs provoke a populist backlash and hotheads run away with the agenda. Mr. Nakagawa later played down the comments, calling them private thoughts, but the genie is out of the bottle.

We have come to assume that Japan under the Liberal Democratic Party (LDP) will always cleave to Amerika, if only to safeguard U.S. protection against Chinese naval expansion. Backed by Washington after the war as a rural counterweight to the urban left, the LDP has held an almost unbroken grip on power since 1955.

But crashes have a habit of bringing regime change. Brian Reading, a Japan veteran at Lombard Street Research, predicts a "seismic shock" over the next four months as voters rebel.

"With unemployment heading for 5 million by end-year, something must happen," he said.

The tremors from Japan follow near-weekly fulminations from Beijing, which suspects that Washington is engineering a stealth default on Amerika's debt by the trickery of quantitative easing. This was put bluntly in February by Luo Ping, head of China's banking commission. "We hate you guys. Once you start issuing $1 trillion-$2 trillion, we know the dollar is going to depreciate."

Premier Wen Jiabao picked up the theme more politely, asking whether the "massive amount of capital" lent to the U.S. was still safe. Since then, the People's Bank has floated ideas for a world currency.