They would have imploded under their own weight a few years down the road, but now that they're targeting a 2 percent inflation rate, Bass said they don't realize it's going to force them to explode much sooner.

For the past 20 years, the thinking among Japanese politicians, businessmen and investors is that Japanese bonds are safe, the yen does nothing but strengthen, and they have persistent deflation, said Bass.

With 2 percent inflation these expectations will change quickly and the yen will collapse and they'll lose control of interest rates, Bass said.

(Read More: BOJ May Scrap 0.1% Rate Floor, Pledge Open-Ended Asset Buying)

He predicts the bomb will detonate within two years.

"All of the components of the equation are in place for this to all of a sudden go off," he said. "When it turns, it will turn at once. The yen will be its strongest right before it breaks, their interest rates will be the lowest right before they break."

Bass advised anyone with yen to buy Western assets to protect themselves. He pointed to the $20 billion Softbank acquisition of Sprint and advertising agency Dentsu's purchase of Aegis in the UK as examples of Japanese companies buying Western assets.

Equity investors should also be wary. With an informal boycott of Japanese goods in China, Bass predicts a secular decline in Japanese exports to China. (Read More: Nikkei Rally to Run Into Resistance Soon: Chart)

"They're going elsewhere to procure goods in China," he said. "Japan's GDP is falling at an alarming rate, their exports are collapsing and a change in the dollar/yen is not going to restore their competitiveness of a secular decline in Japan."

He added that the people buying Japanese stocks are picking up a dime in front of a bulldozer.