Core Viewpoint - The political turmoil in France is intensifying, leading to increased concerns among investors regarding the country's fiscal stability, as evidenced by significant sell-offs in the bond market and a decline in the euro against the dollar [1][4][6]. Group 1: Political Developments - The newly appointed French Defense Minister Bruno Le Maire announced his resignation just one day after taking office, following the resignation of Prime Minister Élisabeth Borne [3][4]. - Prime Minister Borne's resignation was attributed to the inability to form a government due to entrenched political divisions among various parties [4][8]. - The political instability has prompted discussions about potential new elections, with a 57% probability of early elections being indicated by betting markets [14]. Group 2: Market Reactions - Following the political upheaval, the yield on French 10-year government bonds surged past 3.6%, nearing levels seen during the 2011 European debt crisis [1][4]. - The spread between French and German bond yields reached its highest level of the year, exceeding 89 basis points [4]. - The euro has depreciated, falling below the 1.170 mark against the dollar, reflecting market concerns over France's political situation [6][14]. Group 3: Economic Implications - France's public deficit is projected to reach 5.8% of GDP in 2024, the highest in the Eurozone, with total debt at 113% of GDP, significantly above EU regulations [15][16]. - The government plans to tighten control over social and local government spending, aiming to reduce the fiscal deficit to 4.7% by 2026 and approximately 3% by 2029 [17]. - Analysts warn that the resignation of the Prime Minister could lead to further instability, potentially forcing President Macron to resign, which would exacerbate the crisis [18].

Economic Overview - Japan's economy contracted in the first quarter, with GDP declining at an annualized rate of 0.2%, lower than the previously estimated 0.7% [1] - Personal consumption grew by 0.1%, while corporate spending increased by 1.1%. Inventory contributed 0.6 percentage points to growth, but net exports detracted 0.8 percentage points [1] - The outlook remains pessimistic, with expectations of stagnant GDP growth in the second quarter due to global economic slowdown and uncertainties surrounding U.S. tariffs [1] U.S.-Japan Tariff Negotiations - The fifth round of U.S.-Japan tariff negotiations ended without consensus, focusing on trade expansion, non-tariff measures, and economic security cooperation [3] - Japan's stance remains firm against tariffs, which have significantly impacted its economy, particularly in the automotive and steel sectors [3] - Expectations suggest that the U.S. may withdraw the 24% "reciprocal tariff" but retain around 10% additional tariffs on strategic products [3] Trade Relations and Cooperation - Japan is willing to collaborate with the U.S. in shipbuilding technology and liquefied natural gas development, aiming to address trade deficits [4] - Proposals include enhancing mutual certification for automotive exports and promoting Japanese brand vehicles produced in the U.S. for third-country markets [4] - Japan's trade surplus with the U.S. is projected to reach approximately 9 trillion yen in fiscal year 2024, with both exports and imports hitting record highs [4] Japanese Bond Market Volatility - Recent fluctuations in the Japanese bond market have drawn attention, with significant declines in auction results for long-term bonds [5] - The bid-to-cover ratio for the 20-year bond auction fell to 2.5, the lowest in 38 years, indicating weak demand [5] - Concerns over the Bank of Japan's potential interest rate hikes and fiscal stability ahead of the July elections contribute to market volatility [6] Future Outlook for Bonds - The rise in long-term bond yields reflects various factors, including speculation about interest rate changes and concerns over fiscal stability [6] - The Bank of Japan is gradually reducing its bond purchases, which may increase supply in the market and affect bond prices [6] - The government is reportedly considering lowering the issuance of long-term bonds in response to market fluctuations [6]

Core Viewpoint - Moody's downgraded the U.S. sovereign credit rating from AAA to AA1 due to the increasing scale of government debt and interest payments, while adjusting the outlook from "negative" to "stable" [1] Group 1: Credit Rating Changes - Moody's is the latest credit rating agency to downgrade the U.S. credit rating, following Fitch's downgrade to AA+ in August 2023 and S&P's downgrade to AA+ in August 2011 [1] - The downgrades are closely associated with the U.S. debt ceiling approaching the "X date," raising concerns about fiscal stability [1] Group 2: Fiscal Concerns - Moody's expressed concerns about the current fiscal situation and future budget plans, predicting that by 2035, U.S. federal debt will reach 134% of GDP and the federal deficit could rise to 9% of GDP [1][2] - The agency noted that mandatory spending, including interest payments, will increase from 73% of total government spending in 2024 to 78% by 2035, limiting budget flexibility for other public investments [2] Group 3: Current Debt Situation - The total U.S. federal debt has surpassed $36 trillion, with $6.5 trillion in bonds maturing by June 2025 [2] - The fiscal deficit for the first half of FY2025 has already exceeded $1.3 trillion, marking the second-highest level for that period in history [2] Group 4: Political Context - The current fiscal challenges are described as long-term issues rather than short-term problems created by the current administration, with efforts underway to reduce federal spending and promote economic growth [3] - There are concerns regarding the objectivity of credit rating analysts, with political affiliations being questioned, although such claims may serve to divert attention from underlying fiscal issues [3]