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How has the Trade War Impacted Japanese Government Bond Yields?

Oct 09, 2018

  • Japanese Government Bond yields fell to 5-year lows in mid-2016 to negative yields for both Japanese 2-Year Government Bonds and Japanese 10-Year Government Bonds. 
  • Japanese Government Bond yields have risen over the last 18 months as investors have flocked to safe-haven investment vehicles due to rising global trade tensions and increased levels of uncertainty. 
  • Negative inflation of the Japanese Yen (JPY) in 2016, as indicated by Japan's Consumer Price Index (CPI) of -0.13 in 2016, may be a reason for Japan's 2-Year Government Bond and 10-Year Government Bond falling to negative yields in the same year. 
  • Earnings per share (EPS) of the Nikkei 225 index , which tracks large-cap Japanese stocks, increased 18.51% from JPY1,005.01/share in 2016 to JPY1,191.03/share in 2017. Strong earnings growth displayed by Japanese stocks coupled with their strong performance in 2016 and 2017 may have helped Japanese Government Bond yields to recover as investors required higher yields to invest in risk-averse Japanese government debt. 
  • Low spread relative to historic levels between the Japanese 2-Year Government Bond and Japanese 10-Year Government Bond indicate that investors are confident in the future of Japan and require a low risk premium for investing in long-term Japanese Government debt. 
  • High levels of 3-month rolling correlation over the last year further reinforce that investors are not concerned with the Japanese Government's ability to pay long-term obligations. 


    Source: Capital IQ, all charts