Credit rating agency Moody's has downgraded the U.S. credit rating from 'AAA' to 'Aa1,' causing a sharp rise in U.S. Government Bonds interest rates. As the surge in bond rates impacts the stock market, there are analyses indicating that the rapid rise in Japanese Government Bonds is increasing the risk of capital flow.
Park Sang-hyun, a researcher at iM Securities, released a report on the 26th titled "The rising interest rates of Japanese Government Bonds are more dangerous than those of the U.S." He noted, "The potential for Japanese funds, particularly from Japanese life insurance companies, to return to Japan has increased," adding, "The reduction in Japan's securities investments in the U.S. and the risks of unwinding yen carry trades are increasing."
As of the 25th, the interest rate on Japanese 30-year Government Bonds has reached the 3% range. On the 22nd, it surged by 88 basis points, showing the fastest increase among major countries.
The sharp rise in the interest rates of Japanese Government Bonds is analyzed to stem from expanding price pressures and the escape from a deflationary phase. Japan's consumer price inflation rate has continuously increased since it turned upward in September 2021. Notably, in April, the consumer price inflation rate reached 3.6%, the highest among major countries. The rising wage growth is also contributing as Japan enters an inflationary phase, escaping from deflation. Deteriorating fiscal soundness and the Bank of Japan's reduction of Government Bonds purchases are also affecting the surge in bond rates.
Warnings have been issued stating that the sharp rise in Japanese Government Bonds interest rates will increase the risks associated with capital movement. It is analyzed that Japanese funds, which had been invested in the U.S. stock market, may flow out, impacting the stock market.
Researcher Park stated, "If the interest rate spread between the U.S. and Japan narrows due to the rise in Japanese Government Bonds interest rates, the attractiveness of investing in overseas bonds is expected to decrease, along with an increase in currency hedge expenses." He analyzed that if the simultaneous upward trend in U.S. and Japanese Government Bonds interest rates continues, U.S. investments in Japanese Government Bonds and securities will likely decrease.
He added, "Whether the U.S. will lower tariffs on Japanese automobiles will provide grounds for Japan to initiate additional fiscal stimuli and will influence the flow of Government Bonds interest rates. The financial market's interest in the upcoming results of the Bank of Japan's monetary policy meeting in June is expected to heighten."