China's long-term bond yields are now lower than Japan's, raising concerns about the country facing a similar economic stagnation. The decline in Chinese yields mirrors Japan's experience with deflation and sluggish growth for decades.
China , the global growth engine for the last 20 years, now boasts lower long-term bond yields than Japan, the former poster child for deflationary economic stagnation . This may signal that the “factory to the world” faces the real risk of “ Japanification .” China ’s bond yields have plunged to their lowest levels on record, with the two-year yield about to break below 1.00%, having been 1.50% only a few months ago.
Remarkably, China’s 30-year yield recently fell below the Japanese Government Bond (JGB) yield for the first time ever. That phenomenon looks set to hit the 10-year tenor, with China’s bond yield now less than 50 basis points above its JGB equivalent. It’s a situation that would have scarcely been believable to any observer of the global economy over the past 30 years. But here we are. The collapse in Chinese yields is a reminder that the deflation, bad debt dynamics and troubling demographic trends plaguing Asia’s largest economy today are strikingly similar to those that hobbled its fiercest regional rival for three decades. Japan has recently begun to free itself from its decades of deflation, sluggish growth and negative interest rates, enabling the Bank of Japan to begin gradually “normalizing” rate policy. Meanwhile, Beijing is struggling to reflate an economy slammed by COVID-19 pandemic shutdowns and a property sector bust. Deflation, lackluster consumer demand and capital flight forced Beijing to announce unprecedented stimulus and liquidity measures late last year. Investors initially cheered Beijing’s pledges, but the optimism has faded quickly. Chinese stocks are down 5% so far this year and are underperforming their regional and global peers. The country’s foreign exchange reserves also tumbled $64 billion in December, representing nearly 2% of China’s total stash. This was the biggest monthly fall since April 2022 and one of the steepest since the yuan slide and capital flight of 2015-201
FINANCE China Japanification Bond Yields Deflation Economic Stagnation
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