Baosheng Group: The US-Japan protocol exacerbates fiscal risks, putting pressure on the Japanese bond market.

On July 24, Jin10 reported that Magdalene Teo from UBS Wealth Management stated that the Japanese stock market is rising due to the US-Japan trade protocol, but the Japanese bond market sees the protocol as exacerbating fiscal risks, potentially increasing the already massive government debt. Tokyo has pledged to invest $550 billion in the US, which could negatively impact Japan’s credit in terms of capital outflows and may drag down the yen and the Japanese economy. Meanwhile, the ruling coalition’s weakening power makes it more likely for the government to compromise with the opposition, agreeing to lower the consumption tax and increase cash distribution. Teo pointed out that the demand for this week’s 40-year Japanese government bond auction hit the lowest level since 2011, reflecting the market’s avoidance of purchases due to fiscal risks. If yields remain high for an extended period, it will raise the financing costs for the Japanese government amid ongoing economic uncertainty.