Asia open: Cracks deepen as storm clouds gather

Multiple storm clouds

Asian equities woke up this morning staring at two storms on the horizon—one political and one structural. The political tremor is domestic, with Prime Minister Ishiba’s key power broker signalling his resignation, shaking the foundations of the ruling party and sending the yen spinning lower. But the structural quake is global, emanating from the bond market, where the Japanese 30-year yield’s breach of 3.25% may prove far more destabilizing than local politics.

That chart—the 30y JGB—isn’t a footnote, it’s the fault line. A clean break above that threshold doesn’t just unsettle Japanese savers; it forces insurers, pensions, and reserve managers worldwide to recalibrate their models. Once those rebalancing dominoes start to fall, equity markets everywhere feel the aftershocks.

Overlay that with U.S. long bonds grinding toward 5%, and the picture sharpens: tech’s stretched multiples, flattered by cheap money since spring, suddenly look vulnerable. Every tick higher in yields makes those forward earnings less defensible, and that’s why Wall Street’s wobble spills so easily into Asia and beyond.

Meanwhile, the yen’s weakness—down more than 1% overnight—would ordinarily be a tonic for exporters. But political cracks at the heart of the LDP raise the risk of leadership churn, and that breeds hesitation. The Topix and Nikkei opened softer, with electronics and IT dragging, as traders balanced the tailwind of currency depreciation against the headwind of uncertainty.

Gold’s record high and the dollar’s firm tone tell the other half of the story. When both bonds and equities stumble, liquidity hunts for shelter, and bullion becomes the vault of last resort. The dollar’s ascent tightens global financial conditions just as tariff skirmishes in tech and chips resurface, ensuring Asia can’t trade in isolation.

This is how fragile rallies break—not with a single headline, but with the layering of pressures. A Japanese yield breach that forces rebalancing. A U.S. long bond curve is bending toward 5%. A currency spasm sparked by politics. Each by itself is manageable; together, they chip away at the foundation of risk appetite.

In the medium run, Japan’s drift toward more fiscal firepower could become equity-friendly, especially if Ishiba clings to power by promising industrial investment. But that’s tomorrow’s trade. Yields rule today’s screens, and they’re writing a script that no equity bull can safely ignore.