Japan’s demographic challenge low birth rates, shrinking workforce, and rising dependency ratio means that domestic demand for JGBs may remain structurally strong, since the household savings pool via pensions, insurance, banks has to find safe domestic assets. Even if yields rise, it doesn’t necessarily translate into runaway capital flows, because much of the demand is captive
At the same time, if U.S. yields compress due to Fed cuts while Japan normalizes policy, we could indeed see some rebalancing of global portfolios. The magnitude depends on how much Japanese investors still want dollar assets as yield buffers versus yen assets as currency hedges
Rus, is not the wild bullishness late? Two years ago I went long MFG as you did other larger japanese banks. I see today you own MFG too. She is up 200%..2s to 6s. You think $10s?
Your thesis points toward domestic capital repatriation, rising wages, and a potential industrial revival in Japan—all of which would typically support a stronger yen. Do you see this leading to a sustained appreciation in the currency?
I'm still leaning toward a weaker yen policy remaining in place. After all, the weaker yen has finally delivered some inflation and nominal growth, which policymakers have been chasing for decades. Wouldn’t a stronger yen risk undoing that momentum and bring Japan back toward stagnation—something politicians may be reluctant to chance?
Russell, how does Japan's demographic situation (low birth rates) factor into this analysis?
I also wonder if higher yields on JGBs and a Fed that allegedly might start cutting will cause capital flight from Treasuries -> JGBs.
Japan’s demographic challenge low birth rates, shrinking workforce, and rising dependency ratio means that domestic demand for JGBs may remain structurally strong, since the household savings pool via pensions, insurance, banks has to find safe domestic assets. Even if yields rise, it doesn’t necessarily translate into runaway capital flows, because much of the demand is captive
At the same time, if U.S. yields compress due to Fed cuts while Japan normalizes policy, we could indeed see some rebalancing of global portfolios. The magnitude depends on how much Japanese investors still want dollar assets as yield buffers versus yen assets as currency hedges
Rus, is not the wild bullishness late? Two years ago I went long MFG as you did other larger japanese banks. I see today you own MFG too. She is up 200%..2s to 6s. You think $10s?
Hi Russell,
Your thesis points toward domestic capital repatriation, rising wages, and a potential industrial revival in Japan—all of which would typically support a stronger yen. Do you see this leading to a sustained appreciation in the currency?
I'm still leaning toward a weaker yen policy remaining in place. After all, the weaker yen has finally delivered some inflation and nominal growth, which policymakers have been chasing for decades. Wouldn’t a stronger yen risk undoing that momentum and bring Japan back toward stagnation—something politicians may be reluctant to chance?