Morgan Stanley(US:MS) Hua Er Jie Jian Wen·2025-07-07 12:07Core Viewpoint - Japan is facing two significant risk events: the expiration of the equal tariff deadline on July 9 and the Senate elections on July 20, which could impact the yen and Japanese government bond yields [2][5]. Group 1: Equal Tariff Deadline - The deadline for the equal tariff suspension is approaching on July 9, with ongoing trade negotiations between the US and Japan stalled primarily over auto tariffs [5]. - If negotiations break down, the equal tariff rate could increase from the current 24% to between 30% and 35%, raising concerns about global economic growth and potentially leading to a stronger yen [5][6]. - Market participants are relatively optimistic about the tariff issue, with many expecting that the deadline may be extended and that the final tariff rates will not exceed current levels [5][6]. Group 2: Senate Elections - The focus will shift to the Japanese Senate elections on July 20, where the ruling coalition needs to secure at least 50 out of 125 seats to maintain a majority [7]. - If the ruling party loses, the market may anticipate more aggressive fiscal stimulus, which could lead to an increase in long-term Japanese government bond yields [7]. - Unlike the UK, Japan's situation is different due to its substantial current account surplus, which reduces reliance on foreign investment and minimizes direct impacts on the yen's exchange rate [7].