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Yahoo
2 days ago
- Business
- Yahoo
Traders' Guide to Navigating Japan's Upper House Election
(Bloomberg) -- Investors are bracing for a potential triple dip in Japanese bonds, stocks and the yen after Sunday's upper house election, as polls point to a defeat for Prime Minister Shigeru Ishiba's Liberal Democratic Party. The Dutch Intersection Is Coming to Save Your Life Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests LA Homelessness Drops for Second Year Manhattan, Chicago Murder Rates Drop in 2025, Officials Say A loss of majority for the ruling bloc, which is already in the minority in the lower house, threatens to destabilize economic policy and push up government spending. That could trigger selloffs across assets, strategists and investors say. The jitters reflect growing worries over Japan's government debt burden as interest rates rise and the central bank loosens its grip on the bond market. While the ruling party plans to distribute cash handouts, the opposition has suggested cutting the sales tax. JGB yields hit historic highs this week amid concerns around how such pledges will be funded. Japan's trade outlook is also at stake as the Aug. 1 deadline for President Donald Trump's 25% levy on exports fast approaches. Investors worry a defeat for Ishiba could derail bilateral tariff talks, hurting shares of exporters like automakers and possibly pressuring the yen. US Treasury Secretary Scott Bessent is set to pay Ishiba a courtesy call on Friday evening, with Japan's top tariff negotiator, Ryosei Akazawa, hosting the US delegation at the Osaka Expo on Saturday. 'Weak political leadership is clouding the outlook for Japan's market,' said Nozomi Moriya, Japan equity strategist at UBS AG. 'Global investors are looking for alternatives to the US because of political uncertainties there, so strong government direction is a priority.' JGB yields traded slightly lower Friday following a week of volatility, with the yen hovering around 148.5 to the dollar after weakening past 149 on Thursday. Shares fluctuated between gains and losses on pre-election caution. Here's how market players are expecting the vote to impact each asset class. Japanese Government Bonds A loss for the ruling coalition would stoke fears of looser fiscal discipline, likely triggering JGB selloffs, strategists say. The LDP's plan to raise government spending through cash handouts for low-income households would not require the issuance of more government debt, according to the party. In contrast, opposition groups, including the Democratic Party for the People and the Constitutional Democratic Party, are proposing cuts to the consumption tax, which is seen as a potential blow to government finances. 'If there's a stronger sense that fiscal expansion is getting out of control' after the election, 'super-long JGBs could face a serious wave of selling, like the one we saw a few years ago under Liz Truss in the UK,' said Mitsushige Akino, president of Ichiyoshi Asset Management. Yields are already climbing on these concerns, with Japan's 10-year government debt yield touching its highest since 2008 on Tuesday. The surge comes amid a worldwide rise in yields as governments from Germany to the US pledge more spending, especially on defense. Long-term JGBs are especially vulnerable to a rout due to their high level of foreign ownership, wrote Morgan Stanley MUFG strategists Hiromu Uezato and Koichi Sugisaki in a report. Foreign investors are 'sensitive to the fiscal theme,' they wrote. But some are gearing up to take advantage of a potential post-election dip in bond prices. 'We are certainly on the lookout for dislocated pricing in the JGB market,' Navin Saigal, head of Asia Pacific fundamental fixed income at BlackRock, told Bloomberg TV this week. 'If that happens, we would be very interested to take a bite of that apple.' If the LDP maintains its majority, however, hopes of 'a relatively moderate fiscal stimulus' could relieve pressure on ultra-long yields, potentially pushing the 30-year yield down to around 2.9%, Uezato and Sugisaki predict. What Bloomberg Strategists say: 'Elections this weekend add another layer of uncertainty on bonds. The risk of the LDP-led coalition losing its majority raises the odds of additional fiscal spending and the potential of a sovereign credit downgrade. A stagflationary backdrop further exacerbates debt sustainability concerns.' —Mary Nicola, Macro Strategist, Singapore. Read more on MLIV. Stocks A depleted LDP could spell trouble for equities, particularly those of carmakers, if it weakens Japan's hand in ongoing tariff talks with the US. 'Investors are worried that trade negotiations will be delayed if the election leads to a change of administration or a new prime minister,' said Maki Sawada, a strategist at Nomura Securities. Anticipation for a trade truce before Aug. 1 has helped buoy Japanese stocks in recent weeks, with the Topix trading not far off its all-time high. But post-election political instability could dent investors' risk appetite, Sawada said. Stocks of large exporters like autos are particularly sensitive to trade developments and would be hit hardest, she added. LDP losses would also cast doubt over Ishiba's plans to bolster Japan's defense spending, pressuring shares of weapons makers, which have been major drivers of Japanese equities in the past year. Any sense of 'weakened political continuity' would weigh on 'sectors that are seen as policy-sensitive (defense, infrastructure, and green tech),' said Ipek Ozkardeskaya, a senior analyst at Swissquote Group Holdings. That said, gains for opposition parties could boost domestic demand-oriented shares, like retail, as consumption tax cuts would become more likely, brightening the outlook for consumer spending, said Kazuhiro Sasaki, head of research at Phillip Securities Japan. That could help the Nikkei reach a new high, he added. The Yen Japan's currency may also fall against the dollar if the ruling bloc performs poorly, as anxiety around government spending could dent faith in Japanese assets. Some see the yen breaking the key psychological level of 150, not seen since Trump's tariff announcements in April, if the coalition loses its majority. 'The yen will sell off and the JGB yields will go up. That's the whole jigsaw puzzle,' said Ashwin Binwani, founder of Alpha Binwani Capital. But political uncertainty could also spark short-term safe haven demand for the yen, resulting in volatility, said Dilin Wu, a research strategist at Pepperstone Group Limited. 'However, over the medium to long term, rising fiscal deficits and higher bond yields put downward pressure' on the currency, she said. Political fragmentation could lower market expectations of an interest rate hike by the Bank of Japan in the near future, and that may weaken the yen too, Barclays Securities Strategist Shinichiro Kadota wrote in a note. The BOJ's stance is 'unlikely to be altered significantly,' though, due to pressure from the US for more rate hikes, 'suggesting limited scope for stronger yen depreciation pressures,' Kadota added. --With assistance from Momoka Yokoyama, Mia Glass, Naoto Hosoda, Kevin Dharmawan and Matthew Burgess. (Updates with Friday market moves, adds strategist quote) What the Tough Job Market for New College Grads Says About the Economy How Starbucks' CEO Plans to Tame the Rush-Hour Free-for-All Godzilla Conquered Japan. Now Its Owner Plots a Global Takeover Forget DOGE. Musk Is Suddenly All In on AI The Quest for a Hangover-Free Buzz ©2025 Bloomberg L.P. Sign in to access your portfolio
Yahoo
2 days ago
- Business
- Yahoo
Traders' Guide to Navigating Japan's Upper House Election
(Bloomberg) -- Investors are bracing for a potential triple dip in Japanese bonds, stocks and the yen after Sunday's upper house election, as polls point to a defeat for Prime Minister Shigeru Ishiba's Liberal Democratic Party. The Dutch Intersection Is Coming to Save Your Life Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests LA Homelessness Drops for Second Year Manhattan, Chicago Murder Rates Drop in 2025, Officials Say A loss of majority for the ruling bloc, which is already in the minority in the lower house, threatens to destabilize economic policy and push up government spending. That could trigger selloffs across assets, strategists and investors say. The jitters reflect growing worries over Japan's government debt burden as interest rates rise and the central bank loosens its grip on the bond market. While the ruling party plans to distribute cash handouts, the opposition has suggested cutting the sales tax. JGB yields hit historic highs this week amid concerns around how such pledges will be funded. Japan's trade outlook is also at stake as the Aug. 1 deadline for President Donald Trump's 25% levy on exports fast approaches. Investors worry a defeat for Ishiba could derail bilateral tariff talks, hurting shares of exporters like automakers and possibly pressuring the yen. US Treasury Secretary Scott Bessent will pay a courtesy call on Prime Minister Ishiba Friday evening. Japan's top tariff negotiator Ryosei Akazawa will host the US delegation at the Osaka Expo on Saturday. 'Weak political leadership is clouding the outlook for Japan's market,' said Nozomi Moriya, Japan equity strategist at UBS AG. 'Global investors are looking for alternatives to the US because of political uncertainties there, so strong government direction is a priority.' Here's what market players are expecting for each asset class. Japanese Government Bonds A loss for the ruling coalition would stoke fears of looser fiscal discipline, likely triggering JGB selloffs, strategists say. The LDP's plan to raise government spending through cash handouts for low-income households would not require the issuance of more government debt, according to the party. In contrast, opposition groups, including the Democratic Party for the People and the Constitutional Democratic Party, are proposing cuts to the consumption tax, which is seen as a potential blow to government finances. 'If there's a stronger sense that fiscal expansion is getting out of control' after the election, 'super-long JGBs could face a serious wave of selling, like the one we saw a few years ago under Liz Truss in the UK,' said Mitsushige Akino, president of Ichiyoshi Asset Management. Yields are already climbing on these concerns, with Japan's 10-year government debt yield touching its highest since 2008 on Tuesday. The surge comes amid a worldwide rise in yields as governments from Germany to the US pledge more spending, especially on defense. Long-term JGBs are especially vulnerable to a rout due to their high level of foreign ownership, wrote Morgan Stanley MUFG strategists Hiromu Uezato and Koichi Sugisaki in a report. Foreign investors are 'sensitive to the fiscal theme,' they wrote. But some are gearing up to take advantage of a potential post-election dip in bond prices. 'We are certainly on the lookout for dislocated pricing in the JGB market,' Navin Saigal, head of Asia Pacific fundamental fixed income at BlackRock, told Bloomberg TV this week. 'If that happens, we would be very interested to take a bite of that apple.' If the LDP maintains its majority, however, hopes of 'a relatively moderate fiscal stimulus' could relieve pressure on ultra-long yields, potentially pushing the 30-year yield down to around 2.9%, Uezato and Sugisaki predict. Stocks A depleted LDP could spell trouble for equities, particularly those of carmakers, if it weakens Japan's hand in ongoing tariff talks with the US. 'Investors are worried that trade negotiations will be delayed if the election leads to a change of administration or a new prime minister,' said Maki Sawada, a strategist at Nomura Securities. Anticipation for a trade truce before Aug. 1 has helped buoy Japanese stocks in recent weeks, with the Topix trading not far off its all-time high. But post-election political instability could dent investors' risk appetite, Sawada said. Stocks of large exporters like autos are particularly sensitive to trade developments and would be hit hardest, she added. LDP losses would also cast doubt over Ishiba's plans to bolster Japan's defense spending, pressuring shares of weapons makers, which have been major drivers of Japanese equities in the past year. Any sense of 'weakened political continuity' would weigh on 'sectors that are seen as policy-sensitive (defense, infrastructure, and green tech),' said Ipek Ozkardeskaya, a senior analyst at Swissquote Group Holdings. That said, gains for opposition parties could boost domestic demand-oriented shares, like retail, as consumption tax cuts would become more likely, brightening the outlook for consumer spending, said Kazuhiro Sasaki, head of research at Phillip Securities Japan. That could help the Nikkei reach a new high, he added. The Yen Japan's currency may also fall against the dollar if the ruling bloc performs poorly, as anxiety around government spending could dent faith in Japanese assets. Some see the yen breaking the key psychological level of 150, not seen since Trump's tariff announcements in April, if the coalition loses its majority. 'The yen will sell off and the JGB yields will go up. That's the whole jigsaw puzzle,' said Ashwin Binwani, founder of Alpha Binwani Capital. But political uncertainty could also spark short-term safe haven demand for the yen, resulting in volatility, said Dilin Wu, a research strategist at Pepperstone Group Limited. 'However, over the medium to long term, rising fiscal deficits and higher bond yields put downward pressure' on the currency, she said. Political fragmentation could lower market expectations of an interest rate hike by the Bank of Japan in the near future, and that may weaken the yen too, Barclays Securities Strategist Shinichiro Kadota wrote in a note. The BOJ's stance is 'unlikely to be altered significantly,' though, due to pressure from the US for more rate hikes, 'suggesting limited scope for stronger yen depreciation pressures,' Kadota added. --With assistance from Momoka Yokoyama, Mia Glass, Naoto Hosoda and Kevin Dharmawan. How Starbucks' CEO Plans to Tame the Rush-Hour Free-for-All What the Tough Job Market for New College Grads Says About the Economy Forget DOGE. Musk Is Suddenly All In on AI The Quest for a Hangover-Free Buzz How Hims Became the King of Knockoff Weight-Loss Drugs ©2025 Bloomberg L.P.
Bloomberg
2 days ago
- Business
- Bloomberg
Traders' Guide to Navigating Japan's Upper House Election
Investors are bracing for a potential triple dip in Japanese bonds, stocks and the yen after Sunday's upper house election, as polls point to a defeat for Prime Minister Shigeru Ishiba's Liberal Democratic Party. A loss of majority for the ruling bloc, which is already in the minority in the lower house, threatens to destabilize economic policy and push up government spending. That could trigger selloffs across assets, strategists and investors say.
Yahoo
09-07-2025
- Business
- Yahoo
Market Girds for Pivotal 20-Year Japan Bond Sale as Yields Rise
(Bloomberg) -- An auction of 20-year Japanese government bonds Thursday will beam the searchlight back on rising yields as a looming election heightens concerns about fiscal expansion. Singer Akon's Failed Futuristic City in Senegal Ends Up a $1 Billion Resort Are Tourists Ruining Europe? How Locals Are Pushing Back Can Americans Just Stop Building New Highways? Denver City Hall Takes a Page From NASA Philadelphia Trash Piles Up as Garbage Workers' Strike Drags On The sale is just one of several in major debt markets this week as increasing yields on some longer maturities show how investors are worried about widening budget deficits. The 30-year Japanese bond yield breached the key 3% level on Tuesday again, in sight of the peak reached in May, and the 20-year yield is near the highest in about 25 years. 'It is unlikely that major Japanese institutional investors, including banks and life insurers, will actively bid' in the auction, as they await the results of the July 20 election and their impact on fiscal policy, said Ryutaro Kimura, a senior fixed-income strategist at AXA Investment Managers Japan Ltd. in Tokyo. Speculation of less demand comes amid risks to the budget with the ruling Liberal Democratic Party and its coalition partner seeking to entice voters with cash handouts while opposition lawmakers push for lower taxes. In addition, uncertainty over tariffs, with Japan scrambling for a deal after US President Donald Trump announced they will be increased to 25% from Aug. 1, may deepen the risk of the economy entering a technical recession. The auction results are due at 12:35 p.m. Tokyo time, and traders will be on the watch for the bid-to-cover ratio, which measures the level of interest from investors. Another important metric is the tail, which measures the gap between the average and lowest-accepted prices. A wider reading tends to indicate weaker demand. Last month's 20-year bond sale showed some wariness in the market, even after the government adjusted its borrowing plan to calm surging yields. Japan will trim the volume of 20-, 30- and 40-year bonds sold in regular auctions by a combined ¥3.2 trillion ($22 billion) through the end of March 2026. The changes came into effect from July, and though this helped some recent sales such as the 30-year last week, yields have still pushed higher. 'If the 20-year auction came out weak, in this market condition it would affect the 10-year sector in a negative way,' said Shoki Omori, chief strategist at Mizuho Securities Co. in Tokyo, referring to the most liquid Japanese government bond. Sovereign bond yields surged globally earlier this week, with the 30-year Treasury yield heading back toward 5% as some of the world's biggest banks sent fresh warnings over fiscal spending concerns. US Treasuries rallied on Wednesday after an auction of 10-year notes drew strong demand, easing concerns that investors will balk at financing swelling US deficits. In Japan, some major life insurers continue to be skeptical. Meiji Yasuda Life Insurance Co. said it plans to avoid actively investing in Japanese super-long-term government bonds for the next year or two as interest rates may rise and supply pressures build. This is right when the central bank - the dominant holder - is trying to gradually back out of the market. --With assistance from Naoto Hosoda. Will Trade War Make South India the Next Manufacturing Hub? 'Our Goal Is to Get Their Money': Inside a Firm Charged With Scamming Writers for Millions Pistachios Are Everywhere Right Now, Not Just in Dubai Chocolate 'Telecom Is the New Tequila': Behind the Celebrity Wireless Boom SNAP Cuts in Big Tax Bill Will Hit a Lot of Trump Voters Too ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
09-07-2025
- Business
- Bloomberg
Market Girds for Pivotal 20-Year Japan Bond Sale as Yields Rise
An auction of 20-year Japanese government bonds Thursday will beam the searchlight back on rising yields as a looming election heightens concerns about fiscal expansion. The sale is just one of several in major debt markets this week as increasing yields on some longer maturities show how investors are worried about widening budget deficits. The 30-year Japanese bond yield breached the key 3% level on Tuesday again, in sight of the peak reached in May, and the 20-year yield is near the highest in about 25 years.
