"Japanese government bond storm" will once again sweep through the market? European asset management giants bet on the 30-year yield to break 3.5%.

Europe's largest asset management giant, Amundi, recently released a research report showing that due to concerns that Japan's new Prime Minister will significantly increase borrowing, the yield on long-term Japanese government bonds may reach new historical highs in the coming months. If the yield on long-term (10 years and above) Japanese government bonds rises rapidly in a short period of time, the "Japanese government bond sell-off storm" that previously triggered a brief collapse in global equities, bonds, and forex markets may once again hit the global financial market. Claire Huang, a senior emerging market macro strategist at the Amundi Investment Institute, stated that the yield on 30-year Japanese government bonds could rise sharply to over 3.5% in the near future, meaning it would be nearly 40 basis points above Wednesday's trading level. On Tuesday, Kishida Fumio was elected Prime Minister of Japan by forming a new coalition government. She has long advocated increasing government spending to boost domestic economic growth in Japan and supports a long-term low-interest rate monetary policy stance. "Abenomics" revival? The 64-year-old Kishida is a conservative nationalist who considers former British Prime Minister Margaret Thatcher as one of her role models. She has been a long-time ally of former Japanese Prime Minister Shinzo Abe, who was the longest-serving Prime Minister in Japan and a staunch follower of Abe's policies. This is why the current financial market is beginning to bet on the revival of "Abenomics." Recently, the so-called "Kishida trade" has become popular globally, referring to the expectations in financial markets for a return to "Abenomics" as the core policy focus under Prime Minister Kishida, which could lead to significant volatility in stock, bond, and forex markets. The "Kishida trade" mainly results in a rapid rise in the Japanese stock market, continuous depreciation of the yen, and a reactivation of "yen carry trades." Therefore, betting on the "Kishida trade" logic is essentially equivalent to betting on a combination of "stronger fiscal stimulus, industry support, and moderate monetary policy" to boost inflation in Japan - going long on Japanese stocks, short on the yen, and avoiding long-term bonds. "People have concerns about fiscal discipline, especially in the medium term," said Claire Huang, focusing on investment strategies in Asian countries. "I wouldn't say the outlook for the yield on super-long-term Japanese government bonds is very optimistic, or that the long-term bond sell-off has completely ended." Expectations of an interest rate hike by the Bank of Japan and uncertainties in political and fiscal policies are keeping the yield on long-term Japanese government bonds at high levels. Earlier this month, the yield on 30-year Japanese government bonds hit 3.345%, the highest level since the issuance of this long-term sovereign bond in 1999. Japanese long-term government bonds have been one of the worst-performing sovereign assets globally this year. Strategist Claire Huang predicts that only when Prime Minister Kishida's economic and fiscal policies become clearer, and she can control the rising cost of living in Japan, will investors be able to return to longer-term Japanese government bonds. Although she has instructed the introduction of a package of new economic measures aimed at relieving inflationary pressure on Japanese households and businesses, the Kishida government has not specified the specific scale of this plan or whether additional issuance of long-term government bonds will be needed for financing. "Term premium" attack While slowing inflation may curb the rise in long-term yields, Claire Huang believes that there is still a risk of the 10-year Japanese government bond yield reaching 1.8%. This strategist believes that this situation could occur as the Bank of Japan gradually reduces its holdings of sovereign bonds in this maturity under the Yield Curve Control (YCC) policy it has accumulated. Since the beginning of this year, yields on long-term government bonds in developed markets have been continually increasing, with some of the world's largest central banks issuing new warnings about fiscal spending issues, ongoing debt expansion, and the demand for long-term bonds. Therefore, under the Kishida government's "Abenomics" policy focus and the push from the "term premium," the possibility of the yield on 30-year Japanese government bonds reaching a historical high of 3.5% is becoming more likely. The term premium refers to the additional sovereign bond yield compensation required by investors for holding long-term bonds. Particularly in the US bond market, the term premium is most apparent - remaining at high levels for the past ten years. In the eyes of some economists, the issuance of US government bonds and budget deficits during the Trump 2.0 era will be much higher than official estimates. This is mainly due to the economic growth and protectionism framework led by the new Trump administration, fueled by significant tax cuts and increased tariffs domestically, combined with the growing budget deficit, US debt interest, and defense spending. The US Treasury's issuance of debt may be forced to expand rapidly in the "Trump 2.0 era," with China and Japan potentially reducing their holdings of US debt under "deglobalization." The risk of rising Japanese government bond yields has spilled over, and the term premium is likely to increase further, making the 10-year US Treasury yield - the anchor of global asset pricing - remain at 4% or higher this year. Regarding the yen - which has fallen by about 2.5% this month due to market concerns that Kishida Fumio may hinder the Bank of Japan's interest rate hike process - strategist Claire Huang expects that the weak sovereign currency will actually strengthen the reasons for the Bank of Japan to raise interest rates, as more expensive imports will significantly increase domestic inflationary pressure in Japan. "If the US dollar breaks through 155 against the yen and continues to trade in the 155-160 range, the Bank of Japan is likely to continue to raise interest rates," she emphasized. After the yen exchange rate (US dollar to yen) briefly fell to around 153 yen per US dollar, hitting an eight-month low earlier this month, that level is now within reach. As of 7:10 AM Tokyo time on Thursday, the yen exchange rate was 151.84. Claire Huang stated that whether there will be further interest rate hikes this year ultimately depends on the yen.