Executive Summary: Japan's Structural Inflection Point

Forget the false dawns of the past. Goldman Sachs declares that Japan is undergoing a genuine, durable structural awakening. Driven by an alignment of geopolitics, monetary normalization, and aggressive corporate reform, the world’s fourth-largest economy has entered a powerful new growth cycle.

1. The Macro & Geopolitical Redesign Tokyo is quietly…

"While near‑term volatility in Japanese equities due to interest‑rate normalisation and political risk is possible, the structural story—driven by corporate governance reform—is creating opportunities. There is a strong case for Japan’s mid‑ and small‑cap universe, whose valuation discounts to large-cap peers should offer upside as those reforms take hold." - Vincent Mortier - Group CIO, Amundi & ***Monica…

Major Positions

A large portion of our portfolio is concentrated ina small number of American companies such as Apple, American Express, Coca-Cola, and Moody’s – businesses we understand well, have a high regard for their leaders, and expect willcompound over decades.

--- Japan Investments > The same criteria apply to our investments in Japan, which we view as comparable to our…

Bank balance sheet data show that yen lending to offshore financial centers and non-bank borrowers remains elevated, suggesting a large stock of yen-funded positions, see the first two charts.

By contrast, speculative futures positioning has swung sharply, highlighting that carry trades can unwind quickly even as the broader yen-funded footprint remains in place, see the third chart.

"The JGB 10-year, 20-year-forward rate tells a compelling story: A 373-basis-point climb since 2021 marks a structural shift in Japan’s bond market."

"Long-term buyers – insurers and pensions – have stepped back from their role as steady buyers in the super-long sector. In their place, short-term traders dominate, turning 30-year JGBs into tactical plays. The result? Heightened volatility, amplified by global…

#JPY #Yields

The old bond market adage is that 'yields will keep rising until something breaks".

In 2022/23, rising U.S. yields "broke" several banks by March 2023 (Silicon Valley Bank). Japanese yields are now at a 27-year high and going vertical. When does something "break" in Japan?

Source - Jim Bianco

Signifying loss of market confidence? #Yen #Japan

BoJ’s Policy Dilemma | The Bank of Japan is caught in a "pincer movement":

• If they keep rates low: The Yen will continue to crash against the US Dollar (currently near 160), destroying the purchasing power of Japanese households. - If they raise rates to save the Yen: They risk crashing the stock market, hurting domestic borrowers, and making…