Japan’s $137B stimulus hit by bond market rout

Japan’s bond market pushed back hard against the $137 billion stimulus plan that Prime Minister Takaichi Sanae was finalizing last month, according to claims made by Reuters citing alleged inside sources.

The trouble became clear on November 17, when Finance Minister Katayama Satsuki showed Takaichi-san a chart during a meeting at her official residence. The chart reportedly revealed heavy selling in government bonds.

Selling like that lifts long-term borrowing costs, and it hit right as she prepared to fund her plan through new debt.

Naturally, her mood instantly soured, as this pressure threatened the yen, investor trust, and every single cent of the cash she needed to launch her highly-anticipated ‘Sanaenomics.’

The stakes are incredibly high for the entire global economy, because Japan remains the second most financially influential country on the planet.

The yen sits near record lows when adjusted for inflation, and Japan highest debt-to-GDP ratio in the developed world. Takaichi-san need markets to stay calm so she could raise money without sending yields into a spiral.

The meeting pushed her officials to change their public tone in hopes of calming investors, though it is currently unclear whether the change would slow the selloff or stop traders from pulling more cash out of Japan’s bond market.

Markets push yields higher and corner Sanaenomics

Japan’s 10-year government bond yield has climbed to its highest point since 2007. It gained 25.5 basis points in four weeks, the fastest rise in almost three years.

That move spilled over into global markets and rattled traders who already worried about rising government financing costs worldwide.

Demand from the central bank and insurers had slowed, leaving fewer buyers to absorb the debt that Takaichi-san needed to issue.

She told Parliament there was no chance of a “Truss shock”, referring to the chaos that hit the UK in 2022 when Liz Truss’ tax plan triggered a collapse in gilt prices and a plunge in the pound. She also eased her earlier resistance to tighter monetary policy and promised to limit new borrowing.

Takaichi-san introduced what analysts called a Japanese-style DOGE plan aimed at cutting public waste.

Katayama said the government was paying close attention to markets and would protect the country’s finances and investor confidence.

The shock in bonds pulled down the Nikkei, which fell 536.55 points, or 1.05%, showing how the jump in yields filtered through stocks. Other markets across Asia moved unevenly. HSI rose 0.58% to 26,085.08. NIFTY 50 gained 0.62% to 26,196.3. NZX 50 slipped 0.23% to 13,483.99.

Malaysia’s index dropped 0.53% to 1,612.47. Taiwan advanced 0.67% to 27,980.89. ASX 200 edged up 0.19% to 8,634.6. Shanghai added 0.7% to 3,902.808, and Shenzhen climbed 1.08% to 13,147.677.

KOSPI jumped 1.78% to 4,100.05. SETI dipped 0.08% to 1,273.77, while STI fell 0.2% to 4,526.03. SGX-CNBC China Growth rose 1.29% to 1,790.686.

Currency traders adjusted their positions as Japan’s bond story spread. USD/SGD slipped 0.054% to 1.295. USD/CNY eased 0.018% to 7.07. AUD/USD rose 0.3% to 0.663. USD/INR increased 0.257% to 90.039.

NZD/USD moved 0.278% higher to 0.578. USD/JPY dipped 0.2% to 154.77, and USD/HKD added 0.023% to 7.784. EUR/JPY slipped 0.061% to 180.45.

Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.