Core Viewpoint - Japan's cabinet has approved a significant stimulus package of 21.3 trillion yen ($135.5 billion), the largest since the COVID-19 pandemic, aimed at addressing economic challenges and boosting growth [1][2] Economic Context - The stimulus package focuses on three main objectives: alleviating rising prices, promoting robust economic growth, and enhancing defense and diplomacy [2] - It includes local government grants and energy subsidies, which are expected to provide households with approximately 7,000 yen over three months [2] - Japan's economy has recently shown signs of weakness, with a GDP decline of 0.4% quarter-on-quarter in Q3 2025, translating to a 1.8% annualized contraction, marking the first decline in 18 months [4] Inflation and Economic Impact - Inflation in Japan has remained above the Bank of Japan's 2% target for 43 consecutive months, reaching 3% in October 2025 [4] - The government anticipates that the stimulus will increase real GDP by 24 trillion yen, resulting in a total economic impact of nearly $265 billion [4] Market Reactions and Concerns - Despite the stimulus efforts, market observers express skepticism regarding the effectiveness of continued fiscal stimulus beyond emergency situations [5] - The price of five-year credit default swaps on Japanese government bonds has risen to 21.73 basis points, indicating heightened investor concerns about default risk [5] Currency and Bond Market Dynamics - Following the announcement of the stimulus, the yen has depreciated significantly, raising concerns about currency stability and potential government intervention [6] - The 40-year bond yield reached a historic 3.774%, with rising yields reflecting worries about future inflation and fiscal health [7] - A 100-basis-point increase in yields could raise annual government financing costs by approximately 2.8 trillion yen, intensifying fears regarding unsustainable debt servicing [7]

Group 1 - Gold prices remain strong, trading between $3990 and $4000, driven by concerns over economic slowdown due to the ongoing U.S. government shutdown and rising political uncertainty [1] - The Challenger report indicates that October layoffs exceeded 150,000, marking the highest monthly figure in nearly two decades, which has heightened expectations for a Federal Reserve rate cut in December [1] - Analysts suggest that the prospect of rate cuts reduces the opportunity cost of holding gold, enhancing its attractiveness as a safe-haven asset [1] Group 2 - WTI crude oil prices slightly increased to around $59.60 per barrel, supported by a weaker dollar, although rising inventories continue to exert pressure on the market [1] - U.S. Energy Information Administration data shows an increase of 5.202 million barrels in crude oil inventories last week, raising concerns about weak demand [1] - Geopolitical tensions, particularly in Venezuela and disruptions in Russian Black Sea fuel exports, partially offset negative supply impacts, leading analysts to believe oil prices will continue to fluctuate in the short term [1]

Core Insights - The recent market dynamics have been labeled as the "debasement trade," driven by concerns over budget deficits, high inflation, and the declining dominance of the US dollar [2][5]. Group 1: Market Dynamics - Investors are increasingly purchasing hard assets such as gold, silver, and cryptocurrencies, which are perceived as beneficiaries of a weakening dollar and persistent inflation [3]. - The selling side of the debasement trade includes a decline in currencies and government debt, particularly noted in Japan with the yen and sovereign bonds selling off due to political changes [4]. - Central bank stimulus globally is reinforcing the debasement narrative, as low interest rates and money printing raise inflation concerns [5]. Group 2: Inflation and Interest Rates - Rising inflation may lead to rate hikes, which could heighten concerns over sovereign debt, although the sell side of the debasement trade is not as pronounced in the US, where Treasurys have been rallying [6].

Currency Performance - Turkey's lira hits a record low [1] - Lira is heading for a 15th week of losses [1]