Can someone explain the current Japan macro trade to me?
I'm fairly new to the macro space and trying to get a clearer picture on Japan. It seems like short JGBs has been a very popular directional trade this year and makes sense that would continue, one thing I'm struggling to understand though is where Japanese equities go from here on the back of that. Seen a few twitter macro commentators say they think the environment going forward will be supportive for NKY but I don't really understand the logic behind this. Can someone please give me the lay of the land?
Bump
There’s a few theses:
So basically, a developed economy famous for its “lost decade” and brutal deflation issues might be less shitty than everyone thinks now that everyone else (US Equities) are about to wade into shit.
Thanks a lot for this, largely makes sense - is the shrinking workforce problem really behind it though? Feel as if we may be only just starting to see the strain it's causing while the generational imbalance develops for the next few decades.
Really you are looking at will the rate of change of the demographic problems surprise to the upside relative to people’s expectations? They certainly have negative demographics and those haven’t reversed, but is it going to be as bad as everyone thinks?
"Brutal deflation", what are you talking about? Have you looked at the data? Prices were down like -0.5% in 2020 and 2021 and that was it.
Read about the 90s.
Yes, they have had recent inflation and loose policy. Macro thesis is largely structural deflation will offset their loose policy making their policy actually appropriate.
Japan central bank has been the most doveish of any major economy for over a decade. They have kept QE running longer than the Fed, BCE etc. Thus, the yen has been very weak (bullish Japanese assets).
There's a new head of the Japanese CB and you would think their monetary policy can only get tighter (bullish yen, bad for Japan assets including stocks).
That said, the new guy is hard to read, and this trade has been a widowmaker for some time. Tread carefully.
Thanks - that was my assumption too, surely the turnaround in policy would be bad for equities, but I guess hard to know at this point as you say
Impedit molestiae aut odit incidunt sit totam nulla quibusdam. Dolores corporis molestias reiciendis minus rem. Veniam voluptas iure porro cumque enim. Est necessitatibus eaque autem accusantium nobis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...