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Asia Times
3 days ago
- Business
- Asia Times
Japan's bond spasm hits a world without safe havens
TOKYO – Japan doesn't tend to interest global investors very much — until something here goes really, really wrong. Exhibit A: Japan's US$7.8 trillion government bond market, which is suddenly sending sizable shockwaves around the globe. Ten days ago, Japanese government bonds (JGBs) were the usual snooze fest with ultra-low yields, sluggish liquidity flows and trading hours when most masters of the investment universe are switched off. Yet a disastrous May 20 bond auction quickly thrust Japanese debt into the center of the global financial discourse. And for that, investors have Donald Trump and his tariffs to thank. Japan is starting to wobble much like the US. The world's No 1 and No 3 economies are fending off 'bond vigilantes' at a moment when the euro's share of foreign exchange reserves is just 20%, suggesting global safe havens are increasingly hard to find. Investors can't seem to decide which major economy is riskiest. The US and all things Trump? Japan and its lost-decade baggage and current inflation troubles? Or China, with its rising deflation and persistent property crisis? Perceptions on all three tend to ping-pong back and forth on any given day. The plot thickened further during US hours on Wednesday (May 28) when the US Court of International Trade ruled that the Trump administration lacks the authority to impose sweeping tariffs. At least for now, it could bring Trump's trade war to a screeching halt (Trump is already appealing the ruling). Might Trump just try to ignore the ruling? Also, Trump has been raging this week about the rise of the 'TACO trade' on Wall Street, a Financial Times-coined acronym meaning 'Trump Always Chickens Out.' Trump seems aggrieved, too, that China hasn't stepped forward to offer loads of trade concessions since he cut tariffs to 30% from 145%. News that the US will begin revoking visas for Chinese students suggests the trade war isn't going away while hopes for a 'grand bargain' trade deal wane. At the moment, it's Japan's turn in global headlines. Its dubious status as the most indebted developed nation is a surprise to no one. Tokyo's 260% debt-to-GDP ratio is part of investors' thought processes when buying JGBs. Or, for that matter, Nikkei 225 Stock Average stocks. For two years now, the Bank of Japan has been reducing its vast holdings of government debt, part of efforts to normalize the rate environment. Since 1999, the BOJ has held the benchmark rate at, or near, zero. The policy was necessitated by the same reason Japan's national debt is so titanically large: fallout from the 1990s bad-loan debacle. All that debt issuance helped Japan grow modestly year after year. And the BOJ's aggressive JGB purchases — it holds well over 50% of all outstanding securities— helped maintain calm in the market. Until now, it's kept JGB yields from getting out of line. The BOJ's tapering policy was going well enough. Since July 2024, Governor Kazuo Ueda has been cutting purchases by 400 billion yen ($2.8 billion) each quarter. The BOJ even managed to hike official rates to 0.5%, a 17-year high. Then Trump 2.0 arrived to launch a trade war with every economy of scale. The tariffs triggered near-unprecedented turmoil first in US Treasury securities and then in debt markets everywhere. Including Japan, where yields have spiked in headline-grabbing ways. The volatility culminated last week with a 20-year bond auction that absolutely flopped. The typically routine sale of $6.9 billion issues maturing in 2045 drew the least interest since 2012. The 'tail,' the gap between the average and lowest-accepted prices, was the worse since 1987. Suddenly, #JGBCrash was trending in Asian cyberspace. It was Tokyo returning the favor, sending shockwaves back toward the US. Earlier this week, US Treasury Secretary Scott Bessent said worries about Japan were indeed pushing US yields higher. Some argue Japan worries are much ado about nothing. For example, Japanese Finance Minister Katsunobu Kato's team managed to tame markets by signaling a shift in bond issuance toward shorter-dated securities. It helps explain why a less-than-stellar 40-year bond sale on Wednesday didn't slam world markets. Markets are betting that, for now, Tokyo is on top of things. 'We maintain our long-standing view that the challenges in the JGB market are technical rather than structural, says Masahiko Loo, senior strategist at State Street Global Advisors. 'These issues are largely addressable through adjustments in issuance volume or composition.' Loo adds that 'we believe the concern on loss of control over the super-long end is overblown. Around 90% of JGBs are domestically held, and the 'don't fight the BOJ/Ministry of Finance' mantra remains a powerful anchor. Any perceived supply-demand imbalance is more a matter of timing mismatches, which is a technical dislocation rather than a fundamental flaw. We expect these imbalances to be resolved as early as the third quarter.' The MOF's announcement that it might reduce the size of bond issues, Loo says, 'reinforces our view.' Yet risks abound. In a note to clients, Macquarie Bank analysts warn that rising JGB yields could be a 'trigger point' that catalyzes a wave of capital repatriation with Japanese investors pulling funds from dollar assets. Albert Edwards, global strategist at Societe Generale, goes further, arguing a Japanese yield surge could 'trigger a global financial market Armageddon.' Goldman Sachs analysts think the JGB market is a 'canary in the global duration coal mine.' Realizing that, and not wanting to trigger a global meltdown, Tokyo may reduce issuance of super-long JGBs in July, easing market concerns, says Katsutoshi Inadome, strategist at Sumitomo Mitsui Trust Asset Management. However, he adds, 'this offers only temporary relief and won't lead to a decline in Japan's debt balance. With the MOF likely doing its part, politicians now need to make efforts to avoid increasing debt.' The timing of all this could scarcely be worse. Carlos Casanova, economist at Union Bancaire Privée, says that the market has been pricing in the possibility of slower growth and higher inflation. 'Compounded with technical factors in a notably illiquid market,' he says, 'this has exerted upside risks on JGBs, with the 10-year bond picking up to 1.50% and the 30-year soaring to 3.16%. Yet where JGB yields go could have major implications globally. George Saravelos, head of FX research at Deutsche Bank, called the recent divergence between US yields and the yen exchange rate the 'single most important market indicator of accelerating US fiscal risks' because it shows foreign buyers are jittery about the US Treasury market. 'The Japanese yen is strengthening even as US yields are rising,' Saravelos says. 'We consider this as evidence that foreign participation in the US Treasury market is declining.' All this has the BOJ throttling back on rate hikes. Over the last two years, Governor Ueda's team managed to boost the benchmark to the highest since 2008. Now, fears that Japan is skirting stagflation are getting in the way. GDP shrank 0.7% in the first quarter, while consumer price inflation is running at a 3.6% rate. That's nearly double the BOJ's 2% target. Recent market turmoil is 'adding to the Bank of Japan's challenge of balancing price pressures against growth headwinds from US tariffs,' UBS analysts write in a report. UBS thinks the BOJ's next tightening move won't come until 2026. One reason for the BOJ is treading so carefully is indications that regular levels of market liquidity are becoming sporadic. 'If the BOJ makes no changes to its purchase reduction plans despite the survey showing a decline in market functioning, it may send the wrong message that it intends to continue reducing purchases without taking market conditions into account,' says Naoya Hasegawa, chief bond strategist at Okasan Securities. The direction of US Federal Reserve policy is its own mystery. A summary of the May 6-7 meeting of the Federal Open Market Committee suggests the central bank has some misgivings about the volatility in US fiscal and trade policies. 'Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer,' the minutes said. 'Participants noted that the Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken.' Yet the Fed's own economic forecast 'puts the economy squarely in stagflationary territory,' says Omair Sharif, president of advisory Inflation Insights. Not surprisingly, a new JPMorgan Chase survey flags growing fears about the stability of the $29 trillion US Treasury market. Top-line worries include a nearly $37 trillion national debt, Trump's trade war and a chaotic legislative environment on Capitol Hill. The bottom line, as Leah Traub, a portfolio manager at Lord Abbett & Co tells Bloomberg, is that 'demand for longer-term securities is diminishing at the same time as supply is growing.' This means that the typical US safe haven of choice is losing credibility as Japan wobbles, too. If ever there were a moment for China to step up and try to fill this growing vacuum, it's now. Follow William Pesek on X at @WilliamPesek
The Star
14-05-2025
- Business
- The Star
Japan stocks head for longest rally since 2009
The benchmark gauge rose as much as 1.9% to 2,794.96 in Tokyo, heading for a 13th straight day of gains. — Bloomberg TOKYO: Japanese stocks extend their climb, putting the Topix on track for its longest winning streak in 16 years, after the United States and China agreed to de-escalate tariffs, boosting risk-on sentiment and sending the yen lower. The benchmark gauge rose as much as 1.9% to 2,794.96 in Tokyo, heading for a 13th straight day of gains, the most since August 2009. The blue-chip Nikkei 225 Stock Average was up as much as 2.3% to 3,8494.06. The climb comes after the United States slashed duties on Chinese products to 30% from 145% for a 90-day period, while Beijing dropped its levy on most goods to 10%, following two days of high-stakes talks in Switzerland. The announcement came after Japan's stock market closed on Monday. 'The risk-off sentiment that had built up is easing, and it looks like the buying trend will continue for a while longer,' said Naoki Fujiwara, a senior fund manager at Shinkin Asset Management. Exporters like Toyota Motor Corp and Nintendo Co contributed most to the Topix's rise, with banks also strong. Firms that make a large chunk of revenue in China, like Yaskawa Electric Corp and Fanuc Corp, were among the Nikkei's top performers. Investors are still waiting for a trade agreement between Japan and the United States. Prime Minister Shigeru Ishiba intends to reach an agreement with the United States in July, according to Asahi. The US-China agreement makes it 'more likely there is a deal between Japan and the United States,' said Kelvin Leung, a portfolio manager at Robeco Hong Kong. 'However, I'm more worried about the fast optimism in Japan,' he said. 'Judging by the index level, expectations are running ahead.' The Nikkei 225 has climbed more than 5% through Monday since US President Donald Trump announced so-called reciprocal tariffs on April 2. — Bloomberg
Forbes
30-04-2025
- Business
- Forbes
Trump's Tariff Chaos Tosses Bank Of Japan Under The Bus
Kazuo Ueda, governor of the Bank of Japan (BOJ) Donald Trump's quixotic trade war appears to have entered the tilting-at-windmills phase as the U.S. president sees 'big, beautiful' deals that just don't seem to be there. It was news to Xi Jinping's people in Beijing that 'he's called' Trump and that Trump has 'spoken to him many times' about a free-trade pact between the two biggest economies. Beijing's response? China's Foreign Ministry would prefer that Trump's White House not 'mislead the public' on the state trade negotiations. Japanese officials were put in an awkward position recently when Trump World claimed a deal was imminent between the No. 1 and No. 3 economies. Tokyo pushed back gingerly, noting that, actually, Ryosei Akazawa, Japan's minister of economic revitalization and point person in the talks, had already returned home. As Japanese Prime Minister Shigeru Ishiba told parliament on April 14: 'We don't intend to make one compromise after another to conclude negotiations swiftly.' Yet one compromise that Tokyo is almost certainly making this week is the Bank of Japan halting its rate hike cycle, a decision that Trump's fingerprints are all over. Like most major monetary authorities, the BOJ entered 2025 figuring Trump's tariff talk was more a negotiating tactic than a real threat. Maybe a 10% Trump tax here or there, but not a Japan-specific 24% reciprocal tariff, or a 25% levy on autos. And most certainly not a cartoonishly large 145% tax on China, Asia's main economic engine. The headwinds from these actions are forcing BOJ Governor Kazuo Ueda to change his calculus in real time. A month ago, the BOJ seemed full-speed ahead to kick its rate normalization campaign into a higher gear on May 1, hiking its benchmark to 0.75%. Now, virtually no one thinks Ueda will tighten. Trump's tariffs have been an absolute game-changer for Tokyo. Hopes that Ishiba could strike up some kind of bromance with Trump to win Japan a tariff carve-out have been replaced with economic paranoia. In March, Japan's industrial production fell 1.1% from February. To Stefan Angrick at Moody's Analytics in Tokyo, the drop 'reinforces the impression that Japanese producers were already looking vulnerable before U.S. tariffs and tariff threats further scrambled the outlook.' Industrial production remains below levels in 2021, when Covid-19 was in full swing. 'Manufacturing,' Angrick says, 'has gone from bad to worse since the pandemic, grappling with supply-chain disruptions, domestic production hiccups, and increased foreign competition.' At the same time, the yen's nearly 10% rally so far this year puts exporters in an even more precarious position. Ueda, especially, as the BOJ risks sending the yen even higher. At a moment when China is exporting deflation, a surging yen could tip Japan back into recession. It could give global investors who drove the Nikkei 225 Stock Average to record highs in 2024 second thoughts. And it could unnerve global currency and bond markets. Twenty-six years of zero rates morphed Japan into the top creditor nation. It became common practice for investment funds everywhere to borrow cheaply in yen to bet on higher-yielding assets around the globe. The resulting 'yen-carry trade' going awry is one of hedge fund managers' biggest fears. For Ueda, the fear is that his two-year effort to end Japan's deflation-era rate policies will have been in vain. In January, Ueda managed to raise rates to a 17-year high of 0.5%. That had Japan Inc. thinking the zero rate policy instituted in 1999 was finished. Ditto for the quantitative easing strategy the BOJ pioneered in 2001. Then came Trump 2.0's ginormous trade war. Given the economic carnage the tariffs are causing, it's not a reach to worry the BOJ's next move could be to cut rates, not hike them. That could happen if the U.S. slides into recession, many fear. It happened in 2006 and 2007, the last time the BOJ tried to 'normalize' Japan's rate environment. That fizzled when the 2008 'Lehman shock' arrived. Could Trump's trade war unleash similar carnage? It's odd to hear talk about his trade war in such delusional terms, like some hero on a 17th century adventure novel pursuing a foolish pursuit. Cue the Don Quixote references. Along with Trump's growth-killing tariffs arms race, China is already sharing its overcapacity troubles with the world. This puts Japan in the middle of two economic giants at risk of stumbling in different ways. Japan is also heading into a July national election that's as uncertain as they come. Though Ishiba's Liberal Democratic Party thinks it has a firm hold on power, the prime minister's approval rating is around 26%. Ishiba makes Trump seem downright popular. With so many risks rushing Japan's way, there's nothing 'beautiful' about Japan bracing for what a delusional U.S. leader might do next. At least in the case of the BOJ, it's to do nothing on Thursday and pray from a happy ending.
Bloomberg
30-04-2025
- Business
- Bloomberg
Sony Group Shares Soar After It's Said to Consider Chip Spinoff
Sony Group Corp. shares surged after it was said to be mulling spinning off its semiconductor unit, raising expectations that such a move would unlock value in the Japanese entertainment and electronics company. The stock rose as much as 6.8% to the highest level since April 1, among the biggest gainers on the blue-chip Nikkei 225 Stock Average. Japan's markets were shut for a holiday Tuesday. The nation's broader benchmark Topix index was up 0.6%.
Forbes
23-04-2025
- Business
- Forbes
Trump Crashing The Dollar Is Wrecking Japan's 2025, Too
getty For 20-plus years now, U.S. officials have been prodding Japan to engineer a stronger yen. It never occurred to Tokyo, though, that Washington might be willing to crash the dollar to do it. Three months into the Donald Trump 2.0 presidency, the administration's trade war, policy chaos and general dysfunction have investors fleeing the dollar. A 'Trump trade' gone bad has the dollar down nearly 10% versus the yen and euro. Adding to the disorientation, the plunge appears to be by design. President Trump's team believes a weaker exchange rate will offset the effects of the tariffs. That, and the Federal Reserve slashing rates. But count the ways Trump's efforts to sabotage the global reserve currency are backfiring. The resulting turmoil in stock and bond markets has triggered a sell-America dynamic in global markets, one taking on a life of its own. The disorder is also upending Japan's year in unpredictable ways. For one thing, Trump's tariffs have markets betting on stagflation in Asia's second-biggest economy. These taxes on goods will both reduce demand for Japanese exports and boost global inflation. This has the Bank of Japan stepping away from plans to tighten next week. For 24 months now, BOJ Governor Kazuo Ueda has been plotting an escape from 25 years of zero interest rates and quantitative easing. And succeeding. In July 2024, Team Ueda managed to get the benchmark rate to 0.25%. In January, the BOJ reached a 17-year high of 0.5%. At its April 30-May 1 policy meeting, the BOJ was widely expected to boost rates to 0.75%. Yet Trump's one-man tariff arms race will keep the BOJ on hold. What's more, the collateral damage from his 145% tax on China, 25% levy on the auto industry and tariffs on steel and aluminium may push Japanese rates back to zero. The yen's surge, thanks to a cratering dollar, could devastate corporate profits, deepening losses for a Nikkei 225 Stock Average down nearly 12% this year. Here, it's wise to look past Team Trump's efforts at soothing world markets. The odds of this White House throttling back on China tariffs in the long run isn't great. All this depends on the good cop/bad cop act playing out in Trump World. The good cop — Treasury Secretary Scott Bessent — is having a decent week versus bad cop Peter Navarro. But officials here in Asia fear that trade advisor Navarro will have the upper hand in the long run. It's a valid worry, considering Trump's longest-held economic views. A fundamental one is his 1980s-drenched belief that Asia is stealing U.S. jobs, wealth and America's future and must be stopped. Forty years ago, Japan was the great economic evil that had, in Trump's words, 'systematically sucked the blood out of America' and 'gotten away with murder.' At the time, Japan Inc. was buying up New York's Rockefeller Center, famed golf courses like California's Pebble Beach and Hollywood studios. CEOs were buying up virtually every Monet, Picasso and Warhol on auction to hang in Tokyo. Of course, Trump was dead wrong about Japan 'winning the war' of economic domination. A quarter century of deflation saw Japan turn inward. But Trump's current Asia obsession — China — has the scale to dominate the next 40 years in ways Japan never really did. And Trump is making it easier for China to spread its economic wings. His efforts to sabotage the dollar are Exhibit A for why Chinese leader Xi Jinping isn't as unhappy about Trump's trade war as you might think. No, Xi's Communist Party isn't enjoying Trump raising tariffs on China again and again like some manic auctioneer. But Beijing understands that the U.S. can't sideline its giant, rapidly growing economy without strong allies working in lockstep around the globe. Instead, Trump is isolating the U.S. The U.S., remember, is only China's third biggest market after Southeast Asia and Europe. Rather than forging a coalition against China, Trump is losing American allies left and right. And enabling China to position itself as the more stable and reliable partner. The catch is the dollar. The dollar and U.S. Treasury securities are the central nervous system of global trade and finance. An American president who trashes trust in both is doing China's bidding by making non-dollar currencies look more appealing. That includes the Chinese yuan, for which Xi has grand designs to be the reserve currency of the future. International Monetary Fund Chief Economist Pierre-Olivier Gourinchas speaks for many when he says the global economy is being "severely tested' by the Trump 2.0 trade war. The global economy "still bears significant scars" from the "severe shocks of the past four years,' Gourinchas told reporters Tuesday. Now the tariffs have "jettisoned our projections.' The IMF slashed its global growth forecast this year to 2.8% from 3.3%. This would be the worst performance since the start of Covid 19 pandemic in 2020 and the second worst since 2009 following the Lehman Brothers crisis. It's hard to dismiss the IMF's figures as JPMorgan, Goldman Sachs and other Wall Street titans talk about U.S. recession. The Institute of International Finance thinks the U.S. will shrink an annualized 0.8% in the third quarter and 0.3% in the fourth. Far more disturbing, though, is the self-inflicted nature of this downturn. IIF points to 'intensifying policy-driven uncertainty across trade, inflation, and growth.' How this endears the U.S. to friends or foes alike is anyone's guess. Least of all Japan, the best friend the Trump 1.0 era had anywhere. But as Trump trashes the dollar, export-reliant Japan is uniquely vulnerable to the fallout.
