{"id":41848,"date":"2025-07-23T11:36:18","date_gmt":"2025-07-23T11:36:18","guid":{"rendered":"https:\/\/quickassetsmarket.com\/index.php\/2025\/07\/23\/japans-market-is-rallying-but-its-economy-says-it-may-be-short-lived\/"},"modified":"2025-07-23T11:36:18","modified_gmt":"2025-07-23T11:36:18","slug":"japans-market-is-rallying-but-its-economy-says-it-may-be-short-lived","status":"publish","type":"post","link":"https:\/\/quickassetsmarket.com\/index.php\/2025\/07\/23\/japans-market-is-rallying-but-its-economy-says-it-may-be-short-lived\/","title":{"rendered":"Japan\u2019s market is rallying, but its economy says it may be short-lived"},"content":{"rendered":"
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Japan\u2019s stock market is surging. The Nikkei 225 is up over 3% on Wednesday morning and just hit a 52-week high. <\/p>\n

Exporters like Toyota, Sony, and Honda are rallying. Investors are cheering a new trade deal with the US<\/a> and the expected resignation of Prime Minister Shigeru Ishiba.<\/p>\n

But look a little deeper, and the signs are pointing towards a different message. One that says this rally is built on sand. <\/p>\n

Japan\u2019s economy isn\u2019t entering a new era of confidence. It\u2019s entering a new phase of risk. And the bond market sees it first.<\/p>\n

Is Japan losing control of its bond market?<\/h2>\n

The warning signs are clear. On July 23, the government held a 40-year bond auction. It was the weakest in 14 years. <\/p>\n

According to Bloomberg<\/a>, the bid-to-cover ratio, which measures demand, came in at 2.127, the lowest since 2011. Yields spiked to a record 3.375%.<\/p>\n

Source: Bloomberg<\/a><\/figcaption><\/figure>\n

But this was not a surprise. Investors have been retreating from the long end of the Japanese Government Bond (JGB) curve for months. <\/p>\n

Yields on the 30-year bond had already surged to 3.20% earlier in the week.\u00a0<\/p>\n

The curve is steepening fast. The market is demanding higher premiums to lend to Japan over the long term.<\/p>\n

Domestic buyers like life insurers and pension funds, once reliable participants, are pulling back. <\/p>\n

The Ministry of Finance has responded by trimming long-bond issuance, although it hasn’t helped.<\/p>\n

The issue is not just technical. It’s also political. Bond traders are pricing in future instability. <\/p>\n

The market is asking a basic question: who will be in charge, and what will they spend?<\/p>\n

Why Japan\u2019s political shakeup matters now<\/h2>\n

Prime Minister Shigeru Ishiba lost his upper house majority<\/a> in a humiliating election setback. Days later, local media reported he plans to resign. <\/p>\n

Although Ishiba denied these reports<\/a>, one can now tell that for a country built on quiet continuity, all of this indicates that something\u2019s changed.<\/p>\n

His coalition’s defeat has empowered opposition parties pushing for aggressive tax cuts and spending. <\/p>\n

Sanseito, a populist party with Trump-style messaging, jumped from one to fifteen seats. <\/p>\n

The Democratic Party for the People wants the Bank of Japan to return to easy money. Fiscal expansion is suddenly back in style.<\/p>\n

The LDP, Japan\u2019s ruling party, is scrambling to find a new leader. The candidates could not be more different. <\/p>\n

Sanae Takaichi supports looser policy and visits the controversial Yasukuni Shrine. <\/p>\n

Shinjiro Koizumi has youth appeal but is unpredictable. Yoshimasa Hayashi, a Harvard graduate, represents continuity but lacks spark.<\/p>\n

The outcome will be critical. Not just for politics, but for markets. Investors are watching to see if Japan will pick a steady hand or veer into populist territory that further damages confidence.<\/p>\n

Has the trade deal changed anything?<\/h2>\n

On July 22, the market got a surprise: the US and Japan announced a new trade agreement<\/a>. <\/p>\n

Instead of the expected 25% tariffs, the US settled for 15%. Additionally, Japan promised a $550 billion investment in the US.<\/p>\n

Equities soared on the day. The Nikkei 225 and Topix jumped more than 3% into new 52-week highs. The yen briefly strengthened, then faded.<\/p>\n

But this was a relief rally, not a turning point. Investors had priced in something worse. What they got was less bad. <\/p>\n

The fundamental problems have not been eliminated yet.<\/p>\n

Export margins will still be hit. And the boost to equities has not calmed the bond market.<\/p>\n

Can the Bank of Japan afford to stand still?<\/h2>\n

The Bank of Japan has already started to tighten. It has cut back on bond purchases. <\/p>\n

It raised rates in January this year, and another rate hike is expected by autumn. But July came and went without action.<\/p>\n

Deputy Governor Shinichi Uchida gave a conservative speech<\/a>. He mentioned that inflation was running hotter than expected. <\/p>\n

He warned about the risks. He requested patience. But he gave no clear direction.<\/p>\n

The BOJ is stuck. Raise rates, and risk a sharper sell-off in bonds. Stay loose, and the yen could fall while inflation expectations drift higher. <\/p>\n

Either way, the BOJ is no longer in control of the narrative; the markets are.<\/p>\n

Traders are watching the long end of the curve instead of policy statements. Yields are speaking louder than words.<\/p>\n

Why won\u2019t this rally last<\/h2>\n

There are moments when different asset classes tell different stories. When they do, you have to decide who\u2019s telling the truth.<\/p>\n

Right now, equities are telling a story of short-term relief while bonds are telling a story of long-term breakdown.<\/p>\n

But Japan\u2019s economy still faces a ballooning debt-to-GDP ratio of 250%<\/a>, <\/strong>weak wage growth and declining real incomes, a shrinking workforce and fading demographic tailwinds, political instability with no clear successor and a bond market that is losing its domestic base.<\/p>\n

Unless Japan\u2019s next prime minister restores fiscal credibility fast, this moment of calm will not hold. The political vacuum that Japan\u2019s economy finds itself in is not yet priced in.<\/p>\n

Long-term investors have already stepped back. They are demanding higher yields. More compensation. Less trust.<\/p>\n

That\u2019s the deeper message of this week\u2019s market action.<\/p>\n

It\u2019s not about who wins the LDP leadership but about whether Japan, as a system, still deserves a premium on its debt.<\/p>\n

The post Japan\u2019s market is rallying, but its economy says it may be short-lived<\/a> appeared first on Invezz<\/a><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Japan\u2019s stock market is surging. The Nikkei 225 is up over 3% on Wednesday morning and just hit a 52-week high.  Exporters like Toyota, Sony, and Honda are rallying. Investors are cheering a new trade deal with the US and the expected resignation of Prime Minister Shigeru Ishiba. But look a little deeper, and the <\/p>\n","protected":false},"author":1,"featured_media":41849,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-41848","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"_links":{"self":[{"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/posts\/41848","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/comments?post=41848"}],"version-history":[{"count":0,"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/posts\/41848\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/media\/41849"}],"wp:attachment":[{"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/media?parent=41848"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/categories?post=41848"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quickassetsmarket.com\/index.php\/wp-json\/wp\/v2\/tags?post=41848"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}