BOJ Faces Rate Dilemma as Japan Bond Yields Hit 18-Year High

Japan's 10-year government bond yield has reached an 18-year high of 1.95%, now exceeding the expected dividend yield of the Nikkei 225 index. Market observers attribute the surge not only to the Bank of Japan's rate-hike stance but also to a "fiscal anxiety premium" stemming from the Sanae Takaichi administration's plans for large-scale government bond issuance.

With Japan's debt-to-GDP ratio already at 230%, concerns over fiscal sustainability are mounting as the government announces plans to issue an additional 11.7 trillion yen in bonds.

Critics point out that Japan's long-term interest rates have jumped 0.8 percentage points while the economy's potential growth rate remains at just 0.6%, suggesting economic fundamentals cannot keep pace with rising rates.

This has placed the BOJ in a significant dilemma ahead of its monetary policy meeting scheduled for January 19. While markets anticipate a possible rate increase to 0.75%, such a move could push already elevated market rates even higher, potentially deepening an economic slowdown. Conversely, holding rates steady risks worsening inflation, which has exceeded targets for 43 consecutive months, and further yen depreciation.

Experts note that policy uncertainty is growing as the government's expansionary fiscal policy clashes with the central bank's tightening stance.

**China Expands Silk Road to South America**

China is rapidly expanding air and maritime connections with South America, strengthening its influence in what has traditionally been considered "America's backyard."

China Eastern Airlines recently launched a Shanghai-Auckland-Buenos Aires route, reducing travel time to South America by approximately five hours. Analysts expect this to expand into an "air silk road" strategy encompassing passenger and cargo transport, driving broader trade, investment, and people-to-people exchanges.

Maritime and logistics cooperation is also accelerating. Peru's Chancay Port, built with $1.3 billion in Chinese investment, handled 270,000 TEUs in its first year of operation, serving as China's foothold in South America. China is also pursuing a $3.5 billion railway project connecting Brazil and Peru, as well as the "Bioceanic Corridor" crossing the South American continent.

This strategic expansion aligns with China-South America trade growing 2.4-fold since 2016. While South America has traditionally been within the U.S. sphere of influence, some left-leaning governments in Venezuela and Colombia have pushed back against the Trump administration's aggressive foreign policy, turning instead toward closer cooperation with China.

China, positioning itself as the center of Global South solidarity, is expanding its economic and political footprint in the region, opening a new front in the U.S.-China rivalry.

**Meta Scales Back Metaverse After $70 Billion in Losses**

Meta is significantly scaling back its metaverse strategy four years after rebranding the company around the concept. The decision comes as the market has failed to grow as expected and Reality Labs, the metaverse-focused division, has accumulated more than $70 billion in losses.

According to Bloomberg, Meta is considering cutting metaverse-related budgets by approximately 30% next year, with reductions targeting VR devices and the Horizon Worlds platform. If the budget is finalized, Reality Labs may begin workforce reductions as early as January.

CEO Mark Zuckerberg declared Meta a "metaverse company" in 2021, but results have been disappointing. Reality Labs has posted massive annual losses since then, with cumulative losses exceeding $70 billion. Investors have criticized the metaverse as a "bottomless pit" and demanded an early exit.

Zuckerberg has recently shifted focus to AI initiatives, and Meta's stock rose more than 3% on news of the restructuring.

However, Meta plans to maintain some augmented reality and hardware projects showing growth potential, including Ray-Ban smart glasses. The recent hiring of former Apple executive Alan Dye as Chief Design Officer is seen as part of this strategic pivot.