Merryn Talks Money Japan's Bond Market in Focus
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May 28, 2025 Marcus Ashworth, a Bloomberg Opinion columnist and former chief markets strategist, joins to shed light on Japan's bond market intricacies. They dive into the impact of recent market activities on decision-making at the Bank of England. The conversation reveals how rising inflation is shifting demand for long-dated debt and the challenges facing bond auctions. They explore the carry trade strategy's influence on currency dynamics and discuss the delicate balance Japanese authorities must maintain to stabilize the yen amid global investment shifts.
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Japan's Bond Market Dynamics
- Japan's bond market is heavily domestic, dominated by insurers, pension funds, and the Bank of Japan owning much government debt.
- Demand for long-dated Japanese bonds has dropped as Bank of Japan reduces purchases, raising yields sharply.
Shifting Bond Market Psychology
- Inflation and interest rate expectations have shifted globally, breaking prior deflationary psychology.
- Structural demand for long-term bonds is falling as pension funds and insurers reduce long maturity holdings.
Japan's Market Moves Affect Globally
- Japanese bond market turbulence affects global markets due to currency and carry trade linkages.
- Sharp moves in the yen are undesirable for Japan due to export and trade stability concerns.