Nikkei 225 rises 2% behind the scenes: Japanese financial institutions are playing a big game next

The Nikkei 225 index rose by 2% today, while the yield on Japan’s 20-year government bonds fell by 7.0 basis points to 3.185%. Behind this seemingly contradictory trend reflects deep-seated changes occurring in Japan’s financial markets. Recently, Sumitomo Mitsui Financial Group announced plans to increase its holdings of government bonds, and market expectations of a policy shift by the Bank of Japan are reshaping the flow of funds.

Policy Expectations Behind the Simultaneous Rise in Stocks and Bonds

Typically, a stock market rally is accompanied by rising bond yields, but today’s Japanese market shows the opposite. This phenomenon indicates that the market is digesting an important expectation: Japan’s financial environment is undergoing a transformation.

According to the latest news, Yutaka Nagata, Global Markets Director at Sumitomo Mitsui Financial Group, stated that the group plans to significantly increase its holdings of Japanese government bonds after bond yields decline. Specifically, SMFG intends to expand its government bond portfolio from the current 10.6 trillion yen to double that amount. This is not just a simple investment move but a strong signal that Japanese government bonds are becoming more attractive.

Why did Yutaka Nagata change his tone?

Nagata’s statements are particularly noteworthy. He previously favored overseas bonds but now says, “Now focusing on Japanese government bonds.” What is the logic behind this shift?

According to reports, Nagata expects the 10-year Japanese government bond yield to exceed 2.5% by the end of the year, considering a reasonable range between 2.5% and 3%. This indicates that yields on Japanese government bonds are rising, increasing their investment appeal. At the same time, he predicts the yen could depreciate to 180 per US dollar in the coming years, and the Nikkei 225 index could break through 60,000 points within the year.

Implicit in these forecasts is the pressure faced by the Bank of Japan. Yen depreciation requires action from the central bank, and the expectations of higher bond yields and rising stock markets point toward a policy environment adjustment.

Potential Shift in Global Capital Flows

Sumitomo Mitsui’s increased holdings have significant global implications. If Japanese investors stay domestic due to rising yields on Japanese bonds, this could reduce their support for US Treasury bonds. This means US debt might face capital outflows from Japan.

What does this mean for the crypto market?

From a macro perspective, Japan’s policy adjustments will influence the global liquidity landscape. If the Bank of Japan adopts a more aggressive rate hike stance, it could push up global interest rates, affecting valuations of risk assets. Cryptocurrencies, as risk assets, are usually sensitive to changes in the interest rate environment.

Meanwhile, a stronger yen typically accompanies capital flows back into overseas assets from Japan. This could alter some of the capital allocation toward cryptocurrencies.

Summary

The 2% rise in the Nikkei 225 and the decline in bond yields may seem contradictory, but they actually reflect a consensus market expectation of a policy shift in Japan. The transition of Sumitomo Mitsui Financial Group from “favoring overseas bonds” to “focusing on Japanese government bonds” signals a potential major adjustment in Japanese capital flows. This not only impacts Japan’s stock and bond markets but could also reshape global capital flow patterns, especially in relation to US Treasuries and other risk assets. Moving forward, close attention should be paid to the Bank of Japan’s actual policy actions and whether Nagata’s forecast of the Nikkei 225 reaching 60,000 points by year-end can be realized.