LIVE MARKETS-Talking about a possible Truss moment in Japan

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TALKING ABOUT A POSSIBLE TRUSS MOMENT IN JAPAN

Japan’s fiscal stimulus has pushed government bond (JGB) yields higher and put pressure on the yen, sparking chatter among analysts about whether this could resemble Japan's own ‘Truss moment’.

The term ‘Truss moment’ comes from Liz Truss’s short time as UK Prime Minister in 2022, when her government’s mini-budget spooked investors and sent shockwaves through bonds and currencies.

“Japan differs from the UK in terms of its persistent current account surplus and large net international investment positions that leave it less reliant on foreign capital to fund its fiscal deficit and the lack of pension liability-driven investment (LDI) leverage in the superlong sector,” Barclays analysts say.

“However, JGB markets are increasingly fragile due to fading life insurer demand linked to structural headwinds, such as demographics, and Economic Solvency Ratio (ESR) regulation, resulting in a sharp decline in stable domestic demand for superlong JGBs,” they add.

“Their absence has been filled by pension funds' rebalancing flows and foreigners,” they argue recalling that “pension fund rebalancing flows are prone to reversing depending on equity market performance.”

(Stefano Rebaudo)

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