Japan’s 10 year, 20 year and 30 year bond yield has increased significantly over the past few months, and this fact is being plastered all over the news. Why is this a concern, and what impact does it have? I have seen quite a few articles on it, but none explains it the way a layman could understand well. Today, let me try to explain it in a very simple manner.
Background
Japan has been known to have very low interest rates in order to fight deflation. In fact, before March 2024, Japan’s interest rates was at -0.1%. This means that the central bank charged a small fee on commercial banks and financial institutions for holding excess reserves with them. These banks and financial institutions were supposed to spend and lend out the money instead of saving, and in turn encourage spending in the economy. But it did not do well as the Japanese simply refused to spend.
Take note that this is different from the deposit interest rate, which is what people get when they save with the banks in Japan. They still get some interests, albeit very little.
The Yen Carry Trade
The low interest rate meant that money can be borrowed very cheaply. This resulted in many people borrowing money from Japan, then converting the Yen to other currencies such as the USD to invest in. For example just some time ago, if you borrow the Yen at 0.1% interest rate, convert it into USD and do nothing but save it in the US banks, you could earn an interest of approximately 5%. If you borrow Yen, then convert into USD and invest in the US stock market, you could have earned far more. This is what we called the ‘Yen carry trade’.
So what happened was that people borrowed large amount of Yen to invest in other places. That is one of the reason why despite the huge Yen supply, Japan struggled to get out of its deflationary situation.
There is no statistics on how big is the Yen carry trade. Numbers range from as low as $700+ billion to $20 trillion. As of news report in September 2024, the Bank of Korea estimated the size to be 506.6 trillion Yen. Regardless, we know the amount is very big. People borrowed ridiculously huge amount of Yen to bet in the capital markets in the US and around the world.
And it seemed that Japan was being spineless for letting its currency go weak and causing its own economy to suffer, for Japan depends heavily on imports. But was that really the case?
Japan’s Trap
Why is the US able to control the world’s economy? Because many trades have to be settled in USD, and hence many people use USD, whether they like it or not. When a lot of people use your currency, which you have direct control over, you can manipulate the system as you see fit.
Now, when many foreign investors borrowed the Yen, over time Japan has actually gained a lot of clout over how they can manipulate the markets. Of course we know that realistically Japan is the US’ sidekick, but it does not change the fact that it has a lot of influence over the world’s financial system at this moment.
Starting from March 2024, Japan raised its interest rate and it is standing at 0.5% now with expectations to increase it further in December 2025. It may not seem like much, but it significantly increased the cost of borrowing, especially now that the US along with the rest of the world have been dropping their rates.
This was the first step.
The second step is to increase the bond yield. The Japanese government is now expecting to throw in a large fiscal stimulus, causing bond prices to fall and yield to rise. For the layman, a government bond is like an IOU from the government. The government issues a bond (IOU), and the market buys it. Money is transferred from the market to the government for spending (fiscal stimulus), and now the market holds the bond (IOU) which states how much money the government will pay to the holder of the bond annually, and to pay back the amount owed by a specific date.
Assume the bond is worth $1000 which pays $20 annually (2%). Now the government wants to throw in a large fiscal stimulus, so they will issue out many more bonds. Due to supply and demand, your $1000 bond is worth maybe $900 now. But the bond still pays $20 annually. So the buyer of the bond now pays $900 for a $20 annual return (2.22%). This is why when the Japanese government calls for a fiscal stimulus, bond yield increases.
Let us look at the 10 year, 20 year and 30 year Japanese bond yields now.
Global Impact
For the more conservative investors, they would borrow Yen and put in foreign bonds, perhaps US bonds. Now that Japanese interest rates and bond yields are rising, it makes lesser and lesser sense to borrow Yen to invest in foreign bonds. What people would do is sell off their foreign bonds and take back their money, either reallocating to Japanese bonds or simply pay off their debt and close shop.
For the riskier investors, on one hand you have the risk free 3.375% on Japanese 30Y bond. On the other hand you have a high risk stock market investment. Perhaps it may make some sense to cut back a bit. This may not seem like much, but do remember that many people and institutions borrow huge amounts and play on big leverages in the capital markets. A slight movement will liquidate them all.
So what happens when everybody is dumping foreign currencies to change back to Yen, either to reallocate to Japanese assets or to repay their debts? Yen will appreciate.
When Yen appreciates against other currencies, investors who borrowed Yen to exchange to foreign currencies will now have to spend more foreign currencies to change back to the same Yen, making the Yen carry trade even more unattractive. In fact, this may even significantly eat into some of their profits.
This causes a vicious cycle where more and more people will close off their trades (either through liquidations, dumping or graceful exits) in exchange for Yen, which will go back to Japan. What is the consequence? The global markets will tank.
We can expect the following: global bond price falls (yield increases), global stock market falls, commodities fall, cryptocurrency falls, Yen appreciates, global liquidity tightens. Everything points to a crash or a recession.
Conclusion
The Japanese government is taking back the Yen it lent out, and it will not be a happy ending for many. But since we already know what is going to happen, is there something we can do to capitalise on it?
Do note that the above does not constitute financial advice. Investors are to do their own due diligence before making any financial decisions.
ๆ่ฟๅนพๅๆ๏ผๆฅๆฌ็10ๅนด๏ผ20ๅนดๅ30ๅนดๅๅตๆถ็็ๅคงๅน ไธๆผฒ๏ผ่้ไน่ขซๅๅๆฐ่ๅ ฑๅฐไบใ็บไป้บผ้ๆฏไธๅๅผๅพ้ๆณจ็ไบ๏ผๆๅจ็ถฒไธ็ๅฐๅฅฝๅนพ็ฏ้ๆจฃ็ๆ็ซ ๏ผไฝๆฏ้ฝๆฒ่ฝๅพๅฅฝ็ไปฅไธๅๅพ็ฐกๅฎ็ๆนๅผ่งฃ้ใไปๅคฉๆ่ฉฆๅ้ฃ้บผๅใ
่ๆฏ
ๆฅๆฌ็บไบๆ้็ธฎ๏ผไธ็ด็ถญๆ่ๅพไฝ๏ผ็่ณๆฏ่ฒ ๅฉ็ใๅจ2024ๅนด3ๆไนๅ๏ผๆฅๆฌๅฉ็ๆฏ-0.1%ใ้ๆๅณ่ๅคฎ่กๆๅจ้่กๅ้่ๆฉๆง็่ถ ้กๆบๅ้ไธๆถๅๅฐ้่ฒป็จใ้ไบ้่กๅ้่ๆฉๆงๆฏ่ฉฒ่ฑ้ขๅๆ้ขๅๅบๅป็๏ผ่ไธๆฏๅญ่ตทไพใ้ๆฟ็ญๆฌๆไนๆฏ่ฆ้ผๅตๆถ่ฒป๏ผๅบๆฟ็ถๆฟ๏ผไฝๆฏๆ็ตๅ ็บๆฅๆฌไบบไธๆ่ฑ้ขๅฐ่ดๆฟ็ญไธ็ฎๅพๆๅใ
ๆณจๆไปฅไธ่ชช็ๅๅญๆฌพๅฉ็ๆฏไธๅ็ใไบบๆฐๅจ้่ก่ฃกๅญ้ข๏ผ้็ถ้ๅธธ้ๅธธๅฐ๏ผไฝๆฏ้ๆฏๆๆถ้ฃ้บผ้ปๅฉๆฏ็ใ
ๆฅๅๅฉๅทฎไบคๆ
้่ถ ไฝๅฉ็ไปฃ่กจไบๆ่ณๅฎถๅฏไปฅไปฅๆฅตไพฟๅฎ็ๅนๆ ผๅปๅ้ขใ้ๅฐ่ดๅพๅคไบบๅพไพฟๅฎๅฐๅพๆฅๆฌๅไบๅพๅค้ข๏ผๆๅปๅคๅนฃ(ไพๅฆ็พ้)๏ผ็ถๅพๅปๆ่ณใๅฐฑ่ชชๅไบๆฅๅญๅง๏ผๅฆๆไฝ ไปฅ0.1%็ๅฉ็ๅไบๆฅๅ๏ผ็ถๅพๅ ๆๅป็พ้๏ผไป้บผ้ฝไธๅๅฐฑๆพ้ฒ้่ก๏ผๅฐฑ่ฝ่ณบๅ็ด5%็ๅฉๆฏใๅฆๆไฝ ๅไบๆฅๅ๏ผๅ ๆๅป็พ้๏ผๆ่ณ็พ่ก๏ผ้ฃ้บผไฝ ่ณบ็ๆฏๆดๅค็ใๆๅๆ้็จฑ็บๆฅๅๅฉๅทฎไบคๆใ
ๆไปฅๅคงๅฎถๅฐฑๅปๅไบๅคง้ๆฅๅ๏ผๆ่ณๅๅคใ้ไนๅฐฑๆฏ็บไป้บผๅณไพฟๆฅๆฌๅคงๆพๆฐด๏ผๆฅๆฌๅๅ ง็้็ธฎ้ๆฏ้ฃ้บผ้ฃ็บใ
ๅฐๆผๆฅๅๅฉๅทฎไบคๆ็่ฆๆจก๏ผ็ฎๅๆฒๆไธๅๆบ็ขบ็ๆธๆ๏ผ่ชชไป้บผ็้ฝๆใไฝๅ7000ๅ๏ผ้ซๅ20่ฌๅใๆ2024ๅนด9ๆ็ไธไปฝๅ ฑๅฐ๏ผ้ๅๅคฎ่กไผฐ็ฎ้้ซ้็ด506.6่ฌๅๆฅๅใๅๆญฃ่ฆๆจกๅพๅคงๅฐฑๆฏไบใๅคงๅฎถ้ฝๅไบ้ข่ญๆธ้ก็ๆฅๅๆ่ณๅจๅๅค็่ณๆฌๅธๅ ดใ
่้็ไผผๆฒ็จฎ็ๆฅๆฌ๏ผไธ็ดๅจ่ฎ่ชๅทฑ็ๆฅๅ่ฒถๅผ๏ผๅฐ่ด้ๅธธไพ่ณด้ฒๅฃ็็ถๆฟๅๆใไฝๆฅๆฌ็็ๆฏๅญฌๅ๏ผ
ๆฅๆฌ็้ท้ฑ
็บไป้บผ็พๅ่ฝๆงๅถๅ จ็็็ถๆฟ๏ผๅ ็บๅพๅคไบคๆ้ฝๅพไปฅ็พ้็ต็ฎ๏ผๆไปฅๅพๅคไบบไฝฟ็จ็พ้ใ็ถๅพๅคไบบ้ฝๅจไฝฟ็จไฝ ๆ็ดๆฅๆงๅถๆฌ็่ฒจๅนฃ็ๆๅ๏ผไฝ ๅฐฑๅฏไปฅไปปๆๆไฝๅๆบไฝ้ๅ็ณป็ตฑใ
ๅ็๏ผ็ถๅพๅคไบบๅไบๆฅๅ๏ผ้ฃ้บผ้ๆฎตๆ้ๆฅๆฌๆฉๅทฒ็ดฏ็ฉไบๅทจๅคง็ๅธๅ ดๅฝฑ้ฟๅใ้็ฅๅฏฆ้ไธๆฅๆฌๆฏ็พๅ็่ท็ญ๏ผไฝ้ๆน่ฎไธไบๆฅๆฌ็พๅจๅจๅ้็ถ่ไฟ็ตฑไธญๆ่้ๅธธๅคง็ๅฝฑ้ฟๅใ
่ช2024ๅนด3ๆ่ตท๏ผๆฅๆฌ้ๅงๆๅฉ็ๅพไธ่ชฟ๏ผ็พๅจๅฉ็็บ0.5%๏ผไธฆไธไธๅๆ้ๅฏ่ฝ็นผ็บๅพไธ่ชฟใ้็ไผผไธๅค๏ผไฝๅทฒๅคงๅคง็ๅขๅ ไบๅ้ข็ๆๆฌ๏ผๅฐคๅ ถๅจๅ จ็้ๆฏ็็ฐๅขไธใ
้ๆฏ็ฌฌไธๆญฅใ
็ฌฌไบๆญฅๅฐฑๆฏๅขๅ ๅๅต็ๆถ็็ใๆฅๆฌๆฟๅบ็ฎๅ่จๅ่ๅคง่ฆๆจก่ฒกๆฟๅบๆฟๆชๆฝ๏ผๅฐ่ดๅๅตๅนๆ ผไธ่ท๏ผๆถ็็ไธๅใ็ฐกๅฎ่ชช๏ผๅๅตๅฐฑๆฏๆฟๅบ็ๆฌ ๆขใๆฟๅบ็ผๅๅๅต(ๆฌ ๆข)๏ผๅธๅ ด่ฒทไธใ้ขๅฐฑๅพๅธๅ ด่ฝๅฐๆฟๅบๆไธญ่ฎๆฟๅบ่ฑ๏ผ่ๅธๅ ด็พๅจๆๆก่ๅๅต(ๆฌ ๆข)๏ผๆฌ ๆขๅฏซ่ๆฏๅนดๆฟๅบๆ็บ้ๆฌ ๆขไปๅคๅฐ’ๅฉๆฏ’๏ผไธฆไธๅนพๆๆๆฌ ็้ข้ๆธ ใ
ๅ่จญๅๅตๅผ1000ๅ๏ผๆฏๅนดไป20ๅ (2%)ใ็พๅจๆฟๅบ่ฆๅบๆฟ็ถๆฟ๏ผๆไปฅ็ผไบๅพๅคๅตๅธใ็ถๆฟๅญธ101๏ผไพๆๅคๆๅนๆ ผๅฐฑๆ่ทใ้1000ๅ็ๅๅตๅฏ่ฝ็พๅจๅฐฑๅชๅผ900ๅใไฝๆฏๆฟๅบ็ งๆจฃไป20ๅ็’ๅฉๆฏ’๏ผๆไปฅๆถ็็็พๅจๅฐฑๆฏ20/900 = 2.22%ใ้ๅฐฑๆฏ็บไป้บผๆฅๆฌๆฟๅบไธ่ชช่ฆๅบๆฟ็ถๆฟ๏ผๅๅตๆถ็็ๅฐฑไธๅไบใ
่ฎๆๅ็็ๆฅๆฌ10ๅนด๏ผ20ๅนดๅ30ๅนดๅๅต็ๆถ็็ใ
ๅ จ็ๅฝฑ้ฟ
ๅฐๆผๆฏ่ผไฟๅฎ็ๆ่ณๅฎถไพ่ชช๏ผไปๅๆๅๆฅๅๆ่ณๅฅ็ๅๅต๏ผไพๅฆ็พๅตใ็พๅจๆฅๆฌ็ๅฉ็ๅๅๅตๆถ็็ๅจไธๅ๏ผๆๅณ่ๅๆฅๅๆ่ณ็พๅต่ถไพ่ถไธๅ็ใ้ๆ๏ผไบบๅๅฐฑๆ่ณฃๆไปๅๆไธๅ ถไปๅๅฎถ็ๅๅต๏ผๆถๅ้ข๏ผ่ฆๅๆๅ ฅๆฅๅต๏ผ่ฆๅๆๅ็้ข้ไบๅๅฎถ็ก่ฆบใ
ๅฐๆผ้ฃไบๆฏ่ผๆฟ้ฒ็ๆ่ณๅฎถ๏ผ็พๅจไธๆน้ขๆฏ็ก้ขจ้ช็3.375%ๆฅๆฌ30ๅนดๅๅต๏ผๅฆไธๆน้ขๆฏ้ซ้ขจ้ช็่กๅธใๆ่จฑ้ๆๆธๅไธไธๆๆฏ่ผๅ็ใ้็ไผผไธๅค๏ผไฝๆฏๅฅๅฟไบ่จฑๅคไบบๅๆฉๆง้ฝๆฏๅไบๅคง็ญ็้ข๏ผๆงๆกฟๆๅฐๆฅต้ๅจ่ณๆฌๅธๅ ด็ฉ็ใไธ้ปๆณขๅ่ฝๆไปๅๅ จ้ฝ็ตฆ็ๅใ
้ฃ้บผๅคงๅฎถ้ฝ่ณฃๅคๅนฃ่ฒทๆฅๅ็ๆๅ๏ผๆ็ผ็ไป้บผไบ๏ผๆฅๅๆๆผฒใ
ๆฅๅๅ ๅคๅนฃๆผฒ็ๆๅ๏ผๅๆฅๅ็ๆ่ณๅฎถ็พๅจๅพ่ฑๆดๅคๅคๅนฃไพๆๅไนๅๅ็ๆฅๅใ้ๆไฝฟๅพๆฅๅๅฉๅทฎไบคๆๆดไธๅผๅพๅใๆฅๅ็ๅๅผไนๅพๆๅฏ่ฝๆๆไปๅไธ้จๅ็็ๅฉใ
้ๅฐฑๅฐ่ดไธๅๆกๆงๅพช็ฐ – ่ถไพ่ถๅคไบบ้้ไบคๆ(ไธ็ฎกๆฏ็ๅ๏ผ็ฉ่ณฃๆ่ ่จๅ็้ๅบ)ไพๆๅๆฅๅ๏ผๆฅๅๆตๅๆฅๆฌใๅพๆๆฏไป้บผ๏ผๅ้็ถ่ๅธๅ ดๆ่กๆตๆๆฒณใ
ๆๅๅฏไปฅ้ ่ฆ้ๅพๆ๏ผๅ จ็ๅๅตๅนๆ ผ๏ผ่กๅธ๏ผๅๅ๏ผ่ๆฌ่ฒจๅนฃๅคง่ท๏ผๆฅๅไธๆผฒ๏ผๅ จ็่ณ้็ธฎๆฐดใๆๆไธๅๆๅๅธๅ ดggๆ่ ็ถ่ๅฑๆฉใ
็ต่ซ
ๆฅๆฌ็พๅจๅจๆฝๆฐด๏ผ่้ไธๆๆฏไธๅๅฟซๆจ็็ตๅฑใไฝ็พๅจๆๅๆข็ถ่ฝ้่ฆ้ๅๆชไพ๏ผๆฏไธๆฏๆไป้บผ่ฝๆๅ้จ็ฝฒ็ๅข๏ผ
ไปฅไธไธๆงๆๆ่ณๅปบ่ญฐใๅจๆ่ณๅ๏ผๅคงๅฎถๅฟ ้ ๅๅฅฝ่ชๅทฑ็ๅ่ชฒ๏ผๅฎไธ่ชๅทฑ็็ต่ซใ
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