The primary driver of global markets has officially shifted from concerns over liquidity to broader macroeconomic anxieties, placing Japanese assets at the forefront of the pressure.

According to tracking analysis from Nomura Securities' latest weekly macro strategy report, Japan has failed to serve as a safe-haven asset amid escalating geopolitical risks. This is due to its heavy reliance on crude oil imports and high sensitivity to shifts in the global economic cycle. The once-popular "Buy Japan" investment thesis is now being questioned, prompting overseas investors to rapidly unwind their long positions.

Nomura cautions investors to remain vigilant this week regarding the ongoing reversal of positions in Japanese assets. Markets are likely to exhibit a pattern of weak equities, resilient bond markets, a stronger US dollar, and a pressured Japanese yen. Close attention should be paid to the developments in US-Iran tensions and the evolution of global credit risks.

This market pivot reflects a transition from liquidity fears to macroeconomic worries. Since late January, global risk-off sentiment has been building, with market concerns expanding from initial fears—such as excessive AI investment, expectations of quantitative tightening under potential Federal Reserve leadership changes, and AI's impact on employment—to include private credit risks and Middle East geopolitical tensions.

The first three factors were major contributors to anxiety about the withdrawal of excess liquidity. However, robust US economic data had so far prevented macro sentiment from plunging into extreme pessimism. Last week, the emergence of private credit issues, combined with an escalation in geopolitical conflict, acted as the final trigger for a sharp deterioration in global macroeconomic sentiment.

The immediate consequence of this shift has been a sell-off in US semiconductors and small to mid-cap stocks, with capital accelerating its flight from risk assets and pouring into long-term US and European bonds for safety.

The unwinding of the "Buy Japan" trade highlights the fading of its safe-haven allure. During the wave of AI-driven industrial transformation, Japan became an ideal "refuge" for capital exiting the US, benefiting from surging semiconductor demand and AI productivity gains.

However, as market anxiety shifted from industrial disruption to global credit risks and geopolitical conflict, Japan's vulnerabilities were laid bare. Its structural weakness as a heavy oil importer and extreme sensitivity to the global economic cycle caused its safe-haven appeal to diminish rapidly.

This change in perception is driving overseas investors to quickly close out the "Buy Japan" positions established since the House of Representatives election. Although Bank of Japan Governor Kazuo Ueda recently signaled a hawkish stance in an attempt to curb yen depreciation, US investors widely believe that unless the Japanese government clearly commits to countering yen weakness and accepts a neutral policy path from the central bank, even a BoJ rate hike is unlikely to substantially raise expectations for the terminal or neutral interest rates.

In last week's market review, global markets were dominated by three factors: credit concerns stemming from the UK, rising oil prices due to escalating US-Iran military tensions, and a US court ruling against Trump-era tariffs, which weighed on the US dollar.

Safe-haven demand was strong in bond markets, with real yields falling across G3 nations. The US 10-year yield led the decline, dropping 14 basis points, while European yields fell 9 basis points, and Japanese yields remained flat. The US and European yield curves experienced a bull flattening, whereas Japan's curve showed a distorted steepening.

Regarding interest rate expectations, market pricing for a Fed rate cut in April increased from 19% to 25%, while the probability of a June cut rose to 64%. Expectations for a BoJ rate hike in April slightly decreased to 69%. The terminal rate expectation, reflected by the 2-year OIS forward rate, fell to 3.03% for the US and remained flat at 1.59% for Japan.

Equity market performance showed increased divergence. The Nikkei 225 index led with a gain of over 3%, European indices rose nearly 1%, while US stocks fell close to 1%. Technology stocks faced significant pressure, with the SOX index and the "MAG7" group both declining approximately 2%.

In the foreign exchange market, the US dollar weakened against most major currencies except the Japanese yen, which remained under broad pressure. The USD/JPY pair held within the 156.0-156.5 range.