Why turmoil around Japan’s new government could wash up in U.S. financial markets. - Agence France-Presse/Getty Images Recent developments overseas have the potential to complicate the White House’s agenda to bring down borrowing costs, while heightening competition for investors in the U.S. and Japanese bond markets. Aggressive fiscal-stimulus efforts by the cabinet of Japan’s first female prime minister, Sanae Takaichi, have created a spike in long-dated yields of Japanese government bonds and further ...

Get 100% ad-free experience EUR/USD Hanging in There ByING Economic and Financial Analysis AuthorChris Turner Currencies Published 11/21/2025, 03:16 AM EUR/USD Hanging in There View all comments (0)0 ING Economic and Financial Analysis Articles(1696)|My Homepage Follow Euro US Dollar 0.09% US Dollar Japanese Yen -0.43% Euro Swiss Franc -0.05% DX -0.05% DXY -0.04% It could have been a lot worse for EUR/USD this week. A set of FOMC minutes that poured cold water on a December rate cut and a strong headline ri ...

Core Viewpoint - The election of hardline conservative Sanae Takaichi as Japan's prime minister has led to a decline in the yen, with traders speculating on potential changes in interest rate outlook and increased fiscal spending [1][2]. Currency Market Impact - The yen fell 0.76% to 151.895 per dollar, marking its lowest level since October 14, and experienced its largest single-day decline in two weeks [2]. - The yen also faced challenges against the euro and sterling, indicating broader currency market pressures [2]. Government Appointments and Economic Policy - Takaichi plans to appoint Satsuki Katayama as finance minister, who has previously expressed a preference for a stronger yen, potentially influencing market perceptions regarding yen depreciation [3]. - Analysts suggest that inflation and household purchasing power will be critical issues for the new government, which may lead to a reluctance to support further yen depreciation [4]. Monetary Policy Considerations - The Bank of Japan (BOJ) faces challenges in navigating monetary policy, as Takaichi's support for fiscal stimulus complicates the path for potential interest rate increases [4][5]. - There are indications that monetary tightening may be delayed until fiscal easing takes effect, creating a complex environment for the BOJ [5]. Broader Market Context - The dollar index rose to a six-day high, supported by the weaker yen, amidst a generally positive market sentiment following optimistic trade deal discussions between the U.S. and China [6][7]. - Concerns regarding U.S. dollar funding and its implications for euro zone banks were highlighted, reflecting the interconnectedness of global financial markets [7].

Core Viewpoint - China's economic growth in the third quarter slowed to 4.8%, the weakest pace in a year, due to a prolonged property slump and trade tensions, prompting calls for more stimulus to support economic momentum [1]. Economic Data Summary - Q3 GDP growth was 4.8% year-on-year, matching forecasts and down from 5.2% in Q2 [5] - Q3 GDP growth was 1.1% quarter-on-quarter, seasonally adjusted, exceeding the forecast of 0.8% and slightly up from a revised 1.0% in Q2 [5] - September industrial output increased by 6.5% year-on-year, surpassing the forecast of 5.0% and up from 5.2% in August [5] - September retail sales rose by 3.0% year-on-year, in line with forecasts but down from 3.4% in August [5] - Fixed asset investment from January to September decreased by 0.5% year-on-year, below the forecast of a 0.1% increase, and down from a 0.5% increase from January to August [5] - Property investment from January to September fell by 13.9% year-on-year, worsening from a 12.9% decline from January to August [5] Analyst Commentary Summary - Analysts suggest that while the GDP number is decent, domestic activity remains weak, indicating a need for further measures to boost demand [2][3] - There is an expectation that Beijing will meet its 2025 growth target of around 5%, with little need for broad fiscal stimulus at this time [2] - Targeted additional fiscal stimulus is anticipated, with the Q3 GDP number possibly being the low point in the current cycle [4]

So, I think everybody's trying to figure out what to make of this market right now. I want to ask you not about an investment but a trade. Right now, it seems like one of the more attractive uh trades in the market right now with the government shutdown, trade tensions, also questions about the labor market would be VIX futures.Do you see it that way as well or are you seeing some other opportunities with all this volatility. >> Right. I I might say that that trade is happening uh in spite of those um seemi ...

Group 1 - The "Takaichi trade" has led to a significant rise in Japanese stocks, but the banking sector has underperformed as investors reassess their exposure under the new leadership of Sanae Takaichi [1][2] - The Topix banking index fell by 0.12% while the Nikkei share average increased by 4.75%, indicating a divergence in market performance [2] - Despite the recent pullback, banking stocks have rallied by 47% since the Bank of Japan (BOJ) ended its radical stimulus policies in March last year, outperforming the Nikkei's 21% increase during the same period [3] Group 2 - Analysts suggest that banks may benefit from expansionary policies that require financing, and the weakening yen could prompt the BOJ to raise rates despite Takaichi's dovish stance [3][4] - Takaichi's focus on economic security and large-scale infrastructure projects may drive demand for project financing, benefiting both regional and megabanks [5] - Mitsubishi UFJ Financial Group anticipates an average annual boost to pre-tax profits of 166 billion yen ($1.09 billion) from a potential interest rate hike in January 2025, although this would represent less than 10% of its record annual profit of 1.86 trillion yen [6]

Economic Analysis - The two-speed economy creates a "Goldilocks" scenario, where economic weakness justifies continued stimulus [1] - Asset owners benefit from this scenario [1] Investment Strategy - The industry suggests being an asset owner to benefit from the economic conditions [1]

US Economic Outlook - The Trump administration's policies aim to improve the lives of American families, fueling market enthusiasm [1] - The US economy is currently experiencing fiscal and monetary stimulus typically seen during a recession, despite being in a period of near full employment [2] - The US economy is currently on a "sugar high" [3] Inflation and Monetary Policy - Markets may be underestimating the potential for substantial inflation due to immigration, fiscal, and monetary policies [4] - The Fed is prioritizing downside protection in the labor market over managing inflation, which could be risky if inflation reaccelerates in early 2026 [7] - The debate centers on whether the Fed should focus on the labor market or inflation, reminiscent of Janet Yellen's approach to avoid a second recession and job losses [5][6] Tariffs - The market has largely moved past tariff concerns, but high inflation issues related to tariffs remain unresolved [3]

Group 1: Dollar Index and Economic Impact - The dollar index rose by +0.39% to a 1-week high, driven by the resignation of French Prime Minister Lecornu, which negatively impacted the euro, and a significant drop in the yen following the election of pro-easy policy candidate Sanae Takaichi as Japan's new prime minister [1][6] - The ongoing US government shutdown, now in its second week, poses a bearish outlook for the dollar, with potential stagnation in GDP growth if the shutdown continues [2] Group 2: Eurozone Economic Indicators - The EUR/USD pair fell by -0.26% to a 1-week low, influenced by political instability in France after Prime Minister Lecornu's resignation, which raised uncertainty about the Eurozone's economic outlook [4] - Eurozone retail sales for August increased by +0.1% month-over-month, aligning with expectations, while the October Sentix investor confidence index rose by +3.8 to -5.4, surpassing expectations of -7.7 [5] Group 3: Japanese Yen and Monetary Policy - The USD/JPY pair increased sharply by +1.89%, with the yen reaching a 2-month low against the dollar due to Takaichi's election, which diminished expectations for an imminent interest rate hike by the Bank of Japan and raised concerns over increased debt supply from fiscal stimulus [6]

Market Trends & Analysis - The Japanese 30-year bond yield increased by 14 basis points, reaching levels not seen since 1999, indicating a negative sentiment towards fiscal stimulus [2] - The market anticipates two Federal Reserve meetings with expected rate cuts of 25 basis points each [4] - The yield curve is expected to widen from top to bottom, becoming more of a standard yield curve [5] Investment Strategy - The firm suggests focusing on the shorter end of the bond spectrum to capitalize on the slowing job market [5] - Investment-grade corporates are viewed favorably, yielding approximately 725-750 basis points (725-750%) year-to-date [9] - The firm is looking for another potential increase of 25 basis points in yield across 10-year and 30-year rates in the US [3] Economic Outlook - The US economy is described as potentially "jobless" but still booming, suggesting limited reasons to buy duration [2] - Companies are showing hesitancy in hiring due to concerns about the impact of AI on employment needs [9] - Despite mixed economic signals from surveys like Rella and ADP, the firm believes a decent understanding of the economy can be gleaned from available data [7][8]