The historical convergence of the 10-year government bond yields of China and Japan indicates that the prospects of the two countries in the eyes of the market are diverging. China's interest rates remain low, while Japanese rates are steadily rising, showing a clear trend of divergence🔍

1️⃣ Low Chinese interest rates correspond to market judgments

The decline in China's long-term interest rates reflects a cautious attitude towards economic growth momentum, inflation levels, and asset returns. The market faces a shortage of investable targets and tends to prefer buying safe assets like government bonds, leading to further downward pressure on interest rates. Additionally, interest rates are nearing the policy floor, making the balance between stabilizing the exchange rate and stabilizing growth more sensitive.

2️⃣ Structural changes indicated by rising Japanese interest rates

The increase in Japanese yields is driven by factors such as rising inflation, improved wages, and the recovery of corporate profits. The market is beginning to accept the possibility that Japan may remain in a more normal interest rate range for the long term. Although financing costs have risen, the quality of economic operation is expected to improve as a result, making yen assets attractive again.

3️⃣ The core significance of the phenomenon

The divergence in interest rate directions between the two countries has implications that are much deeper than the numbers themselves. China is in a phase of low returns and weak risk appetite, while Japan has entered a path of interest rate normalization and structural recovery. Future regional capital flows, exchange rate trends, and long-term asset pricing may continue to evolve along this divergent path.

The decades-long era of low interest rates in Japan is coming to an end: inflation is rising, wages are moving, and businesses and the market are slowly waking up from hibernation. Will yen assets regain their former glory?