Three things I’m thinking about today…

1) This week, we’ve been exploring the dynamics of how and why the Aussie share market can keep rising. Yesterday, I wrestled with the question of whether the ASX was “too high.”

We also need to keep an eye on Japan, according to my colleague Nick Hubble.

Nick’s a unique macro thinker.

He’s led his subscribers to some outstanding investments over the last few years. His insight into the energy markets led him to recommend, of all stocks, Rolls-Royce.

The gain was 675%—astonishing. Another one of his recommendations is up over 500%. That one could keep going.

If you’re at all interested in how the energy transition is playing out—and who’s likely to benefit or lose—Nick’s your man.

If you’re interested, you can explore more insights from Nick, alongside world-renowned economist and global advisor Jim Rickards, through their publication Strategic Intelligence here.

However, it’s his view on Japan that preoccupies us now. What’s the issue here?

While markets are currently obsessing over the US federal debt, it’s actually Japan that holds the world’s top spot on this unfortunate metric.

Its debt-to-GDP ratio is over 300%—a world record in all of history, as far as I know. Japan’s demographics are also troubling. It’s ageing fast and is, historically, not open to high immigration.

That said, Japan remains the world’s biggest international creditor, thanks to its historic rise from the ashes of World War II.

Nick worries that Western asset markets could be hit as Japan repatriates this money to pay down domestic debt.

His fear isn’t unfounded. There was a nasty drop in the ASX last year, attributed to the yen carry trade.

That time, it was short, sharp, and quickly forgotten. But Japan—long ignored in share market chatter—might rumble markets again.

Odds are, I suspect Nick is right.

The question, as always, is timing.

The term “widowmaker” gets thrown around in markets quite a bit. The idea is a trade people keep trying—and keep losing. Think: shorting CBA, for example.

Japan was the original widowmaker. Japanese yields were the first to go to zero. That wasn’t supposed to happen. A lot of bond traders got steamrolled as that played out.

And fear of Japan’s massive domestic debt is constant. It was there at 100% of GDP, then 200%, and now 300%.

When will something break?

I don’t know—and probably nobody does. And there doesn’t seem to be any sign it will in the short term. Likely, we’d first see issues with a firm holding a lot of that debt.
No sign of that, as far as I’m aware.

In other words, it’s something to think about—but I’d need to see more evidence of a potential crash to start worrying.

2) I’m also aware that one of my industry contacts, property fund manager Warren Ebert, is now sourcing capital from Japanese investors.
In other words, Japan’s money isn’t going home in this instance… it’s coming here!

I asked him why they’re happy to invest in Australia. He told me they see growth and sovereign security here. The similar time zone helps, too.

Think for a moment about their perspective. Their neighbourhood is high-risk—North Korea, China, and Taiwan are close.

We also know fiat currencies are getting inflated, which is driving bitcoin and gold higher. Property is a known hedge against this dynamic. It’s a “hard asset.”

The Aussie dollar is cheap, which no doubt makes the deals even more appealing.

It appears to be early days in the Japanese return to Australia. Thirty years ago, they went big and got burnt. Those old players are likely retired, dead, or out of the game. A new generation is coming full circle.

How big this trend becomes, I can’t say. But it could be a lot bigger—and could push commercial property in Australia to new heights.

It’s another bull factor for Aussie markets.

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Murray’s Chart of the Day –
Japanese Bonds

By Murray Dawes, Wednesday, 28 May 2025

When you start talking about bonds, most people’s eyes glaze over, and yawns crop up.

But when instability starts to surface in major bond markets investors need to wash their face with cold water and pay attention.

I always have the Japanese 10-year bond yield on my watchlist. I have been observing the sharp jump in 10-year bond yields from -0.3% in 2019 to its current level of 1.5%.

I knew the higher the rates went the more losses were being dished out to investors and the Bank of Japan.

But as long as it remained orderly I wasn’t overly concerned.

I have only just realised that all the action was occurring in the Japanese 30-year and 40-year bonds.

In just the last couple of months Japanese 40-year bond yields have jumped from 2.5% to a high of 3.7%.

That’s a 50% increase in yields in two months!

The drop in the value of the bonds is increased by the fact they have such a long maturity.

So there have been some huge losses dished out to investors in those bonds recently.

The other thing to consider is that the higher their bond yields rise the more tempting it will be for Japanese investors to repatriate funds.

That could end up placing upward pressure on bond yields in the US.

Stocks won’t be able to ignore rising yields forever.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps