Congrats to Sanae Takaichi, elected the first woman PM of Japan and who said Margaret Thatcher was always a hero of hers. We’ll now see how similar or not their policies are. For now, the first market reactions reflect the belief she supports more fiscal and monetary stimulus, writes Peter Boockvar, editor of The Boock Report.
Her approach is punching up against the Bank of Japan’s desire to continue to raise interest rates, albeit slowly, and elevated inflation in the country. The yen selloff of 2% highlights what the market believes Takaichi will support – as did the Nikkei rally of almost 5%. But the Japanese government bond market had a really interesting reaction.
30-Year Japanese Government Bond Yield
The 2-year yield fell almost four basis points to a three-week low of 0.905%. But the 10-year yield rose two bps to 1.69%, the highest since June 2008. The 30-year yield spiked by 14 bps to 3.31%, the highest since this issue was first released in 1999. Plus, the 40-year yield jumped by 15 bps to 3.54%, just below its highest since it was first issued in 2008.
This JGB selloff flowed over to Europe. US Treasuries sold off in kind, too. Gold continued to power higher as it is the growing alternative to sovereign bond holdings.
Bottom line: I believe the sovereign bond bear is intact. The response in Japan and France is reflective of the belief that excessive debts and deficits now matter and the demand for long duration is shrinking as a result.
