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Japan Could Shake Global Markets By Spencer Jakab

U.S. investors, refreshed from a long weekend, are having a European celebration with stock futures indicating big gains Tuesday. On Sunday President Trump agreed to delay threatened 50% tariffs on EU goods until the originally proposed date when "reciprocal" tariffs were set to take hold, which is July 9.

***

Investors are always worried about something.

It's interesting to look back at what those things were decades ago. Some old fears about Japan's effect on the world's markets seem quaint today but, with its long-term bond yields hitting all-time highs last week, there are scary parallels.

In 1989 Michael Lewis, a former Salomon Brothers bond salesman, wrote a piece of speculative fiction about the potential financial effects of a major earthquake in Tokyo in 1993. There have been devastating temblors about every 70 years and the last one, 1923's Great Kanto Earthquake , destroyed much of the metropolitan area. "Liar's Poker," the book that made Lewis famous, wouldn't be published until later that year, but the article caused a stir.

It was a different time: Japan seemed to be taking over the world and its stock market dwarfed America's. The country was home to the world's four largest companies-all banks. Aside from the awful human toll of another quake, what might happen to Japan's massive pool of savings if it suddenly were needed back home was a risk that sparked conversation.

Today the world's 10 most-valuable companies are all American and the U.S. stock market is about 13 times as big. Japan, meanwhile, has built up by far the world's largest mountain of government debt relative to its economy over three-and-a-half decades of trying to recover from its financial bubble. In that respect, at least, it has left the U.S. way behind .

But what hasn't changed is America's dependence on the kindness of strangers. East Asian central banks and financial institutions play a huge role in financing federal borrowing. Earlier this month a sudden, sharp rally in the Taiwan dollar spooked regional investors facing large paper losses on U.S. bonds.

Now tremors are showing up in Japan. By American standards, government bond yields in the largest foreign owner of Treasury debt still seem low- well under 4% -but their recent surge has sparked two concerns.

One is a slow-motion version of what Lewis imagined 36 years ago-capital flowing back home and sending the U.S. into a crisis as borrowing costs surge. U.S. 30-year bonds hit their highest yield since 2007 last week . The U.S. lost its last triple-A credit rating this month after a downgrade from Moody's .

The other concern-hard to imagine in 1989-is Japan itself facing a debt squeeze. Rates there have been so low for so long that rising bond yields could overwhelm its budget. Prime Minister Shigeru Ishiba's recent comment that Japan's fiscal situation is worse than that of former basket case Greece didn't help matters.

He was exaggerating for local political effect, but his comments had aftershocks halfway across the world in Washington. Instead of a natural disaster, a man-made one decades in the making is keeping some investors up at night.

Stocks I'm Watching

Tesla : Was it something I said? Sales by Elon Musk's EV maker slumped in the European Union for a fourth straight month , new data showed. Chinese EV makers such as BYD are expanding aggressively in the bloc. Tesla's stock rose nearly 3% in premarket trading amid a broad rally.

PDD : Good things no longer come in small packages. Temu's Chinese owner is due to post results early Tuesday. The bargain app said this month it had stopped sending products to the U.S. from China, after the Trump administration ended a tariff exemption for small-value shipments .

Trump Media : Why let MicroStrategy have all the fun? The company behind President Trump's Truth Social platform aims to raise $3 billion to buy cryptocurrencies, according to a media report . Shares jumped 12% ahead of the opening bell.

U.S. Steel : Japan's Nippon Steel received a conditional green light Friday from Trump to take control of U.S. Steel . Shares in the U.S. company rose ahead of the open, having surged 21% Friday.

Informatica : San Francisco-based Salesforce is again in talks to acquire the data-management software firm, after a deal between the two fizzled last year. Shares in the target company rose 10% premarket, after jumping Friday.

Disney : Over the Memorial Day weekend, Disney's remake of "Lilo & Stitch" topped the box office with an estimated $183 million in ticket sales in the U.S. and Canada. Shares gained more than 1% before the bell.

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On this day in 1794, Cornelius Vanderbilt was born on a farm in Staten Island, N.Y. He started off in the steamboat business with $100, breaking Robert Fulton's monopoly on steamboat traffic on the Hudson River by charging 75% less. He then moved into railroads, building the New York Central into one of the world's dominant businesses. Vanderbilt died as the world's richest man in 1877 with a $105 million fortune.

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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May 27, 2025 06:35 ET (10:35 GMT)

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