Nomura Warns: Bessent's Bond Suppression Failing, Japan Faces 1997-Style FX Risk
Nashnova编辑部
U.S. markets suffered a simultaneous sell-off in stocks, bonds, and the dollar this week. Nomura strategist Naka Matsuzawa warns Bessent's buyback strategy to cap long-end yields is breaking down, with the fallout shifting to dollar weakness — and if Japan follows the same playbook, the risk will concentrate in the yen.
Why is the "Bessent put" losing its punch?
The U.S. Treasury announced this week it would "at least double" buybacks of 10- to 30-year bonds — only two weeks after the last announcement.
The support lasted less than a day: long-end yields dipped briefly, then snapped back, ending the week roughly flat. This means → the market no longer believes buybacks can sustainably cap long-end rates; each repeat weakens the signal.
The dollar reacted even more violently than bonds. In plain terms = the debt wasn't suppressed, but dollar confidence was the first casualty.
Is inflation temporary or sticky?
Bessent publicly called market inflation fears "inconsistent with fundamentals," attributing current pressure mainly to energy — a transitory factor.
Yet the Fed's FOMC minutes this week showed officials remain visibly split on whether AI-driven inflationary pressure can transmit broadly across the economy.
This reflects a fundamental misalignment between Treasury and Fed inflation views — and the market is unwilling to bet on one side's optimism.
Why is Nomura invoking 1997?
Before 1997, cheap yen funding fueled a massive carry trade — borrowing yen to buy higher-yielding assets — that amplified Asian currency overvaluation. When the Fed hiked, the unwind triggered a cascade; Japan's own financial crisis then deepened the global credit crunch.
Matsuzawa warns: if Japan also uses supply-side tools to suppress bond yields, the side effects may be released through yen depreciation. The Bank of Japan holds nearly 50% of outstanding JGBs — far greater market control than the Fed — but that means distortions surface in the exchange rate instead.
In plain terms = the bond market is locked down by the central bank, so pressure can only escape through the currency. The yen is already weak; if confidence cracks further, capital flight risk mirrors 1997.
What did markets signal this week?
Japan's equity market posted the steepest G3 decline at 3.3%; the U.S. fell 1.9%, Europe 1.1%.
The 10-year U.S. Treasury yield rose 1 bp, European yields rose 5 bp, but Japan's 10-year JGB yield fell 3 bp — a notable divergence.
This reflects the market already pricing in "Japan will administratively suppress rates" — the calmer the bond market looks, the larger the hidden risk on the FX side.
What is the "U.S.–Japan currency alliance"?
Japan's Vice Finance Minister for International Affairs, Jun Mimura, called this joint intervention "the culmination of the U.S.–Japan currency alliance," framing it within the bilateral economic-security partnership.
Historical parallel: during Japan's 1998 financial crisis, Treasury Secretary Rubin consistently refused coordinated intervention. The yen plunged from 147 to 108 against the dollar, triggered by the LTCM crisis. Rubin's condition then was "clean up bad loans"; Bessent's condition now is Japan must abandon its reflationary stance.
A technical detail: the U.S. sold EUR/JPY through the Exchange Stabilization Fund (ESF). Citi believes that if EUR/JPY approaches the 185–186 zone, the probability of Japan following up with its own intervention rises significantly — likely with tacit European approval.
How do BOJ rate hikes and AI capex end up in the same equation?
Market pricing now puts the probability of a September BOJ hike at roughly 80%, with three hikes priced in and a terminal rate of 1.75%; the terminal rate expectation (2-year forward OIS) edged up from 2.19% to 2.23%.
Nomura argues that even if September delivery happens, markets have already priced it in — it may not serve as a fresh positive catalyst.
The deeper signal: CDS spreads — the price of insuring against default — on several hyperscaler tech firms have hit historic highs. This means → massive AI capital expenditure is squeezing corporate borrowing capacity and competing directly with sovereign debt for funding. Whether tech-company credit stabilizes has become a critical external indicator for whether equities can hold.
Content is for reference only, not financial advice.