Real wages have declined for four consecutive months, sparking panic in Japan's bond market.

The Yen Remains Under Pressure, Triple Challenges for the Japanese Economy

The Japanese economy is once again facing multiple challenges recently: real wages have declined for the fourth consecutive month, bond market auctions show weak responses, and in U.S.-Japan trade negotiations, Japan hopes to leverage the issue of rare earths for a strategic advantage. These factors collectively intensify doubts about the recovery process of Japan's economy.

Rare Earths at the Center of U.S.-Japan Talks, Japan Seeks to Overcome Tariff Barriers

Amid strengthened controls over rare earth exports by Asian neighbors, Japan is preparing to propose enhanced cooperation on the rare earths supply chain in new round of tariff negotiations with the U.S., to ensure the security of key raw materials. According to the Nikkei Shimbun, the Japanese government hopes to enhance its autonomy in strategic resources through this initiative.

Although Trump previously announced a 24% tariff on Japan, this policy is currently on hold until early July. Japan continues to exert pressure, particularly demanding the U.S. to reassess the 25% tariff on Japanese cars, as the automotive industry is one of Japan's most vital industries.

Real Wages Decline Four Months in a Row, Inflation Erodes Purchasing Power

According to data from Japan's Ministry of Health, Labor and Welfare, Japan's real wages in April dropped by 1.8% year-on-year, marking the fourth consecutive month of negative growth. Although the spring labor negotiations this year pushed nominal wage growth to 2.3%, it remains offset by inflation as high as 4.1%, severely suppressing household real purchasing power.

Data shows that basic wages rose by 2.2% in April, the fastest in four months, while overtime pay only slightly increased by 0.8%. Policymakers are concerned that global trade uncertainties may weaken companies' incentives to continue raising wages, which could affect the Bank of Japan's interest rate hike path.

Weak Bond Market Auctions Lead to Expectations of Reduced Issuance

The Japanese Ministry of Finance's 30-year government bond auction this week saw a decline in demand, with the bid-to-cover ratio dropping to 2.921, the lowest level since December last year. This result has heightened market expectations that Japan might reduce the issuance of ultra-long-term bonds.

After the auction, the 30-year government bond yield fell by 7 basis points to 2.875%, reflecting investors' anticipation of rising bond prices. Strategists indicated some investors were eager to close positions before prices rise further.

In addition to 30-year bonds, the 10-year government bond yield also fell to 1.46%, and the 20-year to 2.355%. If the Ministry of Finance indeed announces a reduction in ultra-long-term bond supply in July, it may further push up bond prices in the short term.

Market Focus Shifts to U.S. Nonfarm Data

On June 7th (Friday), the market will focus on the U.S. May nonfarm employment data, released at 20:30 Beijing time. Against the backdrop of unclear Federal Reserve rate hike prospects and the Yen's continued pressure, U.S. data will be a crucial reference for global investors to assess Yen trends and bond market directions.

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