Merryn Talks Money – Markets Weekly: Japan’s Bond Shock and the Global Ripple Effect

Host: Merryn Somerset Webb
Guest: John Stepek, Senior Reporter at Bloomberg
Date: January 23, 2026

Overview

This week’s episode provides an in-depth look at the dramatic moves in global markets triggered by the recent shock in Japanese bond yields, exploring the implications for international capital flows, equities, commodities, and the outlook for the UK market. Merryn Somerset Webb and John Stepek break down the politics driving Japan’s surprise election, debate the tension between capitalism and democracy as economic forces, and discuss potential winners in a rapidly rebalancing global investment landscape—with their signature candid, insightful banter.

Key Discussion Points & Insights

The Immediate Shock: Japan’s Snap Election and Bond Market Turmoil

• [02:07 – 03:49]
  • Japanese PM called a snap election, promising to cut sales tax on food from 8% to 0% for two years—an “arms race” of fiscal giveaways.
  • Opposition parties propose even more radical cuts, fueling market worries about debt and deficits.
  • Yields on Japanese government bonds spike—40-year bonds above 4%, 10-year above 2%, levels unseen for decades.
• Quote:

  “You need to bribe the electorate whenever you’re going to go for an election. … No one’s saying, ‘oh, that’s a really daft idea, that’s really expensive.’ Instead, they’re all competing to make even greater promises.”
  — John Stepek [02:56]

Democracy, Capitalism, Inflation, and Deflation

• [03:49 – 05:07]
  • Democracy is naturally inflationary (spending promises to voters), while capitalism is deflationary (competition, efficiency).
  • Japan’s long era of deflation might be ending, unleashing inflationary political pressures.
  • Historical parallels: Even nondemocracies (like Ancient Rome) ultimately succumb to inflation pressures when mismanaging economies.
• Quote:

  “The natural state of a democracy is generally inflationary, right? ... There’s a constant tension across all types of capitalist democracies.”
  — Merryn Somerset Webb [03:49]

Japanese Yields: Global Contagion and Capital Flows

• [05:25 – 07:24]
  • Rising Japanese yields increase yields worldwide, raising the risk money flows back to Japan from global markets.
  • The “yen carry trade” reversal may prompt Japanese investors to sell overseas holdings (notably US tech stocks) to buy domestic bonds.
  • Recent US market moves (e.g., NASDAQ downturn) may relate more to Japanese capital flows than Trump’s “saber-rattling” over Greenland.
• Quote:

  “If you buy into [Japanese bonds], particularly if you think the yen’s going to appreciate, then actually probably not a bad place to buy JGBs. … You might see a whole lot of money sucked out of the US stock market and back into Japanese government.”
  — John Stepek [06:21]

Long-term Rebalancing Away from the US

• [07:55 – 09:02]
  • Anticipation of a “consistent rebalancing” away from US assets, as the US share of global indices is historically high (~67-70%).
  • Europe’s talk of divesting US assets is more rhetoric than reality, but broader reallocation is underway.
  • The move is overdue for reasons of diversification; Trump’s policies act as a catalyst, not a cause.
• Quote:

  “It’s kind of crazy that so much global capital is in the US—way more than represents sensible diversification… So definitely, obviously Trump is a catalyst for that, but it’s a move that has been on the cards for a long time.”
  — John Stepek [08:26]

The Commodities Supercycle and Gold/Silver Mania

• [10:14 – 11:51]
  • Surging demand and policy shifts signal a commodities “super cycle.”
  • Silver approaches $100/oz; gold remains strong as geopolitical risk mounts.
  • Mark Carney’s Davos remarks—“the old rules based order is dead”—seen as confirmation of a profound, possibly contrarian macro shift.
• Quote:

  “The old rules based order is dead. … It probably represents the final turning point for economies back inwards, where they start re-industrializing, start really focusing on energy security…”
  — Merryn Somerset Webb (recapping Carney) [11:28]

UK Market’s Opportunity as Global Capital Shifts

• [12:32 – 14:34]

  • The UK, “still the third largest stock market in the world,” could benefit as money flows out of the US.
  • The FTSE 100’s strong performance and concentration in “old fashioned” stocks (like miners) positions it well for the next phase.
  • Recent regulatory reforms aim to attract retail investors and boost listings.
  • Both the UK and Japan have relatively weak currencies, appealing to global investors.

• Quote:

  “If you’re looking to move money out of the US, you might think to yourself, well, do you know the FTSE 100 doesn’t look too bad, particularly given all those miners and all that old fashioned stuff that nobody ever wanted before they may now want.”
  — Merryn Somerset Webb [13:34]

Notable Quotes & Memorable Moments

• On snap elections and fiscal populism:

  “…Clearly hasn’t spoken to Theresa May recently.”
  — Merryn Somerset Webb, referring to the Japanese PM’s snap election [02:52]

• On the arms race of giveaways:

  “It’s sort of almost an arms race.”
  — John Stepek [03:29]

• On commodities:

  “Silver is within sniffing distance to $100 an ounce now. I never thought I’d see that.”
  — John Stepek [10:21]

• On gold and silver nostalgia:

  “Do you remember how excited we were when it went through 50?” — Merryn Somerset Webb
  “Why don’t I own any is my main question.” — John Stepek [10:28–10:35]

Timestamps for Key Segments

• [02:07] – Japanese politics & bond market shock
• [03:49] – Inflation: Democracy vs. capitalism
• [05:25] – Japanese yields’ impact on global flows
• [07:55] – Global rebalancing away from US markets
• [10:14] – Gold, silver, and commodity supercycle
• [12:32] – Opportunities for the UK market
• [15:10] – Key takeaways & summary

Summary / Takeaways

• Watch Japan: Political wrangling and fiscal promises are shaking global markets, starting with soaring Japanese bond yields and shifting capital flows.
• US Market Vulnerability: US equities may face more selling if Japanese and global investors bring money home or pursue better diversification.
• Commodities and Old-Economy Winners: Gold, silver, and resource-rich stock markets (like the UK) stand to benefit as geopolitical risks and strategic stockpiling build momentum.
• Regulatory Reform Tailwinds: The UK’s “old fashioned” market and evolving regulation may attract new investment as funds rebalance worldwide.
• Keep One Eye on Politics: Developments in Japan, the US, and European rhetoric shape risk, but deeper macroeconomic trends—like the revival of inflation and the end of the “rules-based order”—are in play.

For more, follow Merryn Somerset Webb and John Stepek on X/Twitter (@erinagew and @johnstepek).