- The yield on Japan's 10-year government bonds has risen for nine consecutive trading days, reaching as high as 2.88%, the highest level since September 1996, setting a record for the longest rise in 19 years.
- The Suga government plans to invest over 370 trillion yen in public-private joint ventures by fiscal year 2040, but has not specified the exact source of funds, raising serious concerns in the bond market about its fiscal discipline.
- Societe Generale strategist Edwards issued a stern warning, pointing out that the divergence between the soaring Japanese bond yields and the weakening yen reflects a collapse in market confidence, potentially replaying the UK's Truss moment of 2022.
Fiscal Expansion Plan Triggers Intense Bond Market Reassessment
Japanese government bonds have recently been heavily sold off, with ultra-long-term bond yields even surpassing those of Germany, forcing the yield curve to steepen sharply. Daiwa Securities senior economist Kento Minami noted that the risk premium on long-term prices is being rapidly reassessed, highlighting a clear disconnect between market expectations and government policy, reflecting investors' caution towards the Suga government's large-scale fiscal expansion blueprint.
Limited Policy Space Restrains Central Bank's Rate Hike Pace
Although the Bank of Japan raised interest rates to 1% in mid-June, it still seems insufficient in the face of persistent inflationary pressures. Mizuho Securities analysts pointed out that the Suga administration's inclination to use loose monetary policy as a premise for economic growth has led to market concerns that the Bank of Japan's future policy tightening space will be severely limited.
Yen Divergence Logic Highlights Market Confidence Collapse
In traditional economic logic, a sharp rise in bond yields usually attracts capital inflows and supports the exchange rate, but currently, the yen continues to weaken even as Japanese bond yields soar. Societe Generale strategist Edwards analyzed in the "Global Strategy Weekly" that this abnormal asset divergence phenomenon shows that market confidence in the yen's real value is collapsing.
Cross-Border Capital Reversal May Resonate with U.S. Stock Valuation Reassessment
As a long-term global supplier of cheap capital, if Japanese bond market yields continue to surge towards 4% or higher, it will attract a large-scale return of global arbitrage funds to Japan. This move could make it difficult for U.S. stocks, currently with a forward P/E ratio of over 20 times, to maintain high levels, and may even resonate with the AI network bubble burst risk warned by the Bank for International Settlements, triggering a valuation correction of global risk assets.
