Asia-Pacific markets are facing a "double whammy" in both stocks and bonds! During early trading on January 20, the Asia-Pacific bond yield curve steepened, with yields on Asian 10-year and 30-year bonds rising by 3 basis points. Japan's 40-year yield reached 4% for the first time, while bond prices in Australia and New Zealand also declined.
Against this backdrop, Asia-Pacific stock markets experienced a broad sell-off. The Nikkei 225 index fell sharply by nearly 1% at one point, and if it closes lower today, it would mark the fourth consecutive day of declines. South Korea's KOSPI index dropped over 1.3% intraday, while Australia's stock index fell more than 0.7%. Sentiment in A-shares and Hong Kong stocks was also affected, with both markets trending lower.
External Shifts In early trading on the Tokyo bond market, Japanese long-term government bonds continued to be sold off, driving yields higher. The yield on the 10-year Japanese Government Bond (JGB), a key indicator of long-term interest rates in Japan, rose to 2.330% at one point, its highest level since February 1999. The yield on Japan's 40-year government bond climbed to 4%, the highest level since the bond's initial issuance in 2007 and the first time a Japanese sovereign bond has reached this level in over 30 years.
The rise in bond yields reflects accelerating selling of Japanese government bonds due to market concerns that a plan to cut the food sales tax could put pressure on public finances. The centrist reform coalition is proposing to fund the implementation of a zero food tax by establishing a new government-related fund.
Simultaneously, global bond prices broadly declined. The yield curve steepened, with Asian 10-year and 30-year yields rising by 3 basis points. Bond prices in Australia and New Zealand also fell. Andrew Ticehurst of Nomura Securities stated that long-term sovereign yield curves appear fragile against a backdrop of policy uncertainty. Conversely, Chinese government bond futures may have risen due to safe-haven demand.
Influenced by the bond market, equity markets also suffered significant impact. China's ChiNext Index fell over 2% at one point, the Shenzhen Component Index dropped more than 1%, with sectors like the Hainan Free Trade Port, satellite internet, optical communication, and controllable nuclear fusion leading the declines. The A50 index experienced a sharp plunge, and the Hong Kong Hang Seng Tech Index fell over 1%. Major stock markets in Japan, South Korea, and Australia all saw sell-offs. US stock index futures also declined across the board.
Two Major Bearish Factors The bearish factors in the market primarily stem from two directions: Japan and Greenland.
Firstly, from Japan, according to comprehensive Japanese media reports on January 20, on the local time of the 19th, Japanese Prime Minister Takaichi Sanae announced at a press conference that she would dissolve the House of Representatives on the 23rd to hold an election. Takaichi stated that the goal of this election is for the ruling party to win a majority of seats, adding that "whether I can continue to serve as Prime Minister depends on this." Since Takaichi took office last year, Japanese government bonds have begun a round of selling, primarily due to her policy orientation. It was reported that Takaichi cited reasons for dissolving the House of Representatives including changes in the framework of the ruling coalition and the need to implement new policies.
Akira Hoshino, Head of Japanese Markets at Citigroup, indicated that if key interest rates like the 10-year government bond yield begin to exceed the inflation rate, Japanese institutions might consider repatriating overseas investments back into domestic fixed-income assets. If his assessment proves correct, assets in other parts of the world could also come under pressure as a result.
Secondly, regarding Greenland, recently, both the United States and Denmark have increased their military presence in Greenland. On January 19, Greenland's Premier of the Self-Government, Múte Bourup Egede, stated that regarding recent US statements, including tariff threats, Greenland's position would not change. Greenland will not yield to pressure. Analysis suggests that as the proposed date for US tariffs on Greenland approaches, related trade tensions are intensifying, which could affect demand for US assets. This impact has accelerated the decline in global bond prices and spilled over into equities.
Deutsche Bank stated that escalating tensions surrounding Greenland could weaken the US dollar's status, as it puts pressure on transatlantic financial relations. The bank pointed out that European investors hold approximately $8 trillion in US bonds and stocks and believes that "the US has a key vulnerability: reliance on other countries to pay its bills through massive external deficits." Deutsche Bank indicated that threats to the Western alliance could prompt capital repatriation, making any euro weakness a buying opportunity. The bank also suggested that potential European responses could involve capital markets, warning that "weaponizing capital rather than trade flows" would have the most disruptive impact on markets.
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