Last week, after the U.S. announced a postponement of tariffs, Japan became the first country to initiate substantive negotiations this week.

On Monday, Nomura Securities released a research report stating that the U.S. chose Japan as the first trade negotiation target, intending to create a 'model case' for reaching agreements with other countries.

Although the Japanese government promises to increase investment in the U.S. and procure energy, the U.S. may not be satisfied with this and still intends to push a package of conditions that are difficult for Japan to accept.

For example, requiring Japan to set clear trade surplus targets, forcing Japan to 'buy more and sell less', interfering with Japan's trade balance; promoting yen appreciation, which may harm export companies and stifle Japan's economic recovery momentum; requiring Japan to extend the maturity of U.S. government bonds held, limiting Japan's foreign exchange reserve flexibility; increasing government fiscal spending, further intensifying supply pressure in Japan's bond market and raising Japan's long-term bond yields.

Every condition is not easy for Japan, and if the above demands are realized, it will create multiple constraints on Japan.

In Japan, according to Kyodo News, Prime Minister Shigeru Ishiba emphasized in the Diet on Monday that Japan will not compromise for the sake of quickly reaching an agreement and stressed the importance of collaborating with long-term allies:

"Rushing to complete negotiations may lead to failure, and making too many compromises just to reach an agreement is not a wise move."

If the U.S. demands are met, will the yen rise and the bond market explode?

The report clearly points out that the potential demands from the U.S. could have a significant impact on the Japanese financial market.

Nomura warned that if the U.S. successfully applies pressure, the dollar may weaken rapidly, and the yen may appreciate significantly. Additionally, in the current context of heightened risk aversion, the yen is increasingly seen as an alternative to the dollar, with continued capital inflows intensifying appreciation pressure.

Yen appreciation means a decline in the competitiveness of Japanese goods exports, directly hitting manufacturing companies that are export-oriented. This 'rapid appreciation' may far exceed the economic capacity of Japan.

In terms of the bond market, the U.S. may ask Japan to increase fiscal spending to stimulate domestic demand and expand procurement from the U.S. However, the problem is that more spending requires more funding, meaning the Japanese government will issue more government bonds to raise funds, which will significantly increase the supply of government bonds.

Nomura pointed out that the Japanese government bond market, especially the ultra-long-term section, has shown signs of unstable supply and demand. If the U.S. requires Japan to expand fiscal spending, it will exacerbate the already tight balance of supply and demand in the ultra-long-term government bond market, leading to a rapid rise in long-term interest rates and a steepening of the yield curve. Meanwhile, expectations for interest rate hikes by the Bank of Japan this year have been lowered (Nomura predicts the first rate hike will be delayed until January 2026), increasing the risk of volatility in the bond market.

On Monday, the yield of Japan's ultra-long-term government bonds surged significantly, with the 20-year bond yield soaring 7 basis points to 2.435%, a new high since 2004, and the 30-year yield skyrocketing 12 basis points to 2.845%. This sharp fluctuation occurred before the auction of Japan's 20-year bonds on Tuesday, but more importantly, the market is digesting expectations of the Japanese government soon introducing a massive supplementary budget plan.

Additionally, Nomura warned of an imbalance in the global bond market, with risks of liquidity tightening potentially intensifying.

Nomura stated that last week, global stock markets rebounded following news of the postponement of Trump's tariffs, but then softened again. The high-yield bond spread, a 'canary indicator' of credit tightening, continues to widen, and the most serious issue is that global bond supply and demand has significantly collapsed, with U.S. ultra-long-term government bonds becoming the epicenter of the turbulence, no longer able to provide a safe haven function for risk-averse trading.

In this context, if the functions of government bonds and the money market fail, investors may be forced to cut positions across the board, further intensifying risk-averse sentiment. If the Federal Reserve maintains a hawkish stance and refuses to cut interest rates, while market liquidity remains tight, it will exacerbate credit contraction and could even trigger a liquidity crisis. BTC ETH XRP #巨鲸动向 #币安投票上币 #CPI数据来袭 $BTC $ETH $XRP