Japan's 'Widow-Maker' Bond Trade Becomes World Beater

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00:00We're hearing or seeing a lot of talk about the widowmaker trade right now on the Bloomberg

00:04terminal. So those trying to make money going short JGBs, perhaps because they expect interest

00:09rate hikes, perhaps because they expect fiscal larges and yields to go higher as a result.

00:14What do you make of the JGB curve? What are you thinking about that and how that will respond

00:19to the change in leadership? So if we look at the move in the JGB curve, since the Bank of Japan

00:25exited yield curve control and negative interest rate policies, it's basically kind of moved up in

00:31parallel. We haven't really seen a massive steepening of that curve. So it seems like it's relatively

00:38rational to think that long term rates are also going to go up as the Bank of Japan normalizes

00:43policy. And that's what the Bank of Japan can do to combat inflation. And inflation is Bank of Japan's

00:49bailiwick. So I would say that it's totally rational, especially given the inflation fighting

00:55and also the backing away from the quantitative easing and the accumulation of large balances of

01:04JGBs on the Bank of Japan's balance sheet that that yields should move upward. I think the key here is

01:09whether the move is orderly and probably some responsible fiscal policy, even if there is near term

01:15stimulus, is going to play a factor in how this all turns out. Well, Naomi, let's talk about the

01:23Japanese inflation picture a little bit further. It's famous for importing inflation via energy prices,

01:28among others. This new prime minister is talking about rolling back some of the fuel taxes, for

01:33example. At the same time, we're also talking about Japan talking about limiting dependence on things

01:38like Russian LNG, another major story crossing the Bloomberg terminal this morning. Is Japan getting

01:43lucky with this commodities environment right now? Well, I think Japan has always been an energy

01:51importer. So it doesn't really have the luxury of of doing things like, for example, saying that,

01:59you know, they're going to go all in on fossil fuels. So renewables are part of the mix. Equally,

02:04I know that there's been a focus on on nuclear. It's always been part of the plan to meet future

02:12demands for energy to to to turn reactors back on, even though it may be unpopular with the the

02:22electorate. Japan has to look at many different sources to meet its future energy needs, even

02:28despite the demographics, because of things like data centers, other, you know, the need to to raise

02:34capacity to increase productivity. There is going to be an increasing energy demand. So there's no one

02:41one one magic bullet here. Japan has to look at all of its options.