Reference News Network, November 21 report - According to the Bloomberg News website, November 20 report, Japanese Prime Minister Sanae Takeda is facing her first major market test since taking office. Investors are anxious about the government's upcoming stimulus plan, which could disrupt the stock market rebound that was sparked by Takeda's election.

Concerns that Takeda's spending plans would worsen Japan's fiscal condition have led to a decline in Japanese government bonds and further depreciation of the yen, entering a dangerous zone that may require intervention. Meanwhile, the Nikkei 225 index recorded its largest drop since April this year this week.

The Takeda government is expected to announce the long-awaited economic stimulus plan on Friday, and "selling Japan" trades may have just begun. Japanese bond yields reached their highest levels in decades; the yen depreciated by 1% overnight, indicating increasing pressure.

Mark Dowling, Chief Investment Officer at RBC BlueBay Asset Management, said: "If Takeda loses policy credibility, investors will start selling all assets."

This week's cross-asset sell-off highlights the fragility of the so-called Takeda trade, which pushed the Japanese stock market to record highs in October, with investors betting that her expansionary fiscal policy would revitalize the Japanese economy. By November 19, just under a month into Takeda's tenure as prime minister, the Nikkei 225 had erased all gains since her election, sharply reminding investors of reality.

Recently, the yen's exchange rate against the U.S. dollar also fell to its lowest level since January this year, mainly due to a stronger U.S. dollar, which is because investors' expectations of a Federal Reserve interest rate cut have weakened. The current yen exchange rate is approximately 157 yen per U.S. dollar. If the exchange rate falls below 158.87 yen per U.S. dollar, it would be the lowest level since July last year.

Amir Anvarzadeh, Japan equity strategist at Japan Asymmetric Consulting, said: "The honeymoon is over." He said that although traders initially cheered for Takeda and her policies supporting economic stimulus, many are now "overwhelmed."

Anvarzadeh said that concerns about fiscal spending were not the only factor causing the deterioration of sentiment. In the past two weeks, Takeda canceled the government's annual budget balance target, vowed to make Japan's corporate governance rules less shareholder-centric, and triggered diplomatic disputes with Beijing. He said these measures have unsettled investors, put pressure on the stock market, and caused bond yields to surge.

The release of Japan's economic stimulus plan will be the next key test. It is expected that Takeda's plan will exceed the previous prime minister's 13.9 trillion yen (approximately 88 billion U.S. dollars) package, and some legislators are pushing for an additional budget of about 25 trillion yen.

Hiroshi Nagoka, Chief Strategist and Fund Manager at T&D Asset Management, said: "25 trillion yen is a large amount, and people are questioning whether it is really necessary." He is concerned that after the government announces the stimulus plan, there may be a "triple bottoming" - simultaneous declines in stocks, bonds, and the yen, similar to the market turmoil Japan experienced under Liz Truss in 2022.

Alex Lu, a macro strategist based in Singapore at TD Securities, said that if Takeda seeks a "big budget," Japanese long-term bond yields may rise further, and the yen-to-dollar exchange rate may fall toward 160 yen per U.S. dollar.

Alex Lu said that if the yen continues to depreciate, regardless of the extent, the Japanese authorities may intervene. A metric tracking the speed of the yen's depreciation (a key trigger for the authorities' actions) has approached the levels at which the authorities previously intervened multiple times in the past month. (Translated by Hu Xue)

Original: https://www.toutiao.com/article/7575147356980281899/

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