Japan’s Meltdown Threatens Your Portfolio

HEADLINES
What You Need To Know

In May, U.S. companies announced nearly 94,000 job cuts. That is the most for any May since the pandemic and a 47 percent jump from last year. The services sector led the way with more than 22,000 cuts, its worst month in five years. Retail and tech followed with over 10,000 each. What is driving the cuts? Tariffs, shrinking budgets, weaker consumer spending, and overall economic pessimism. Nearly 700,000 layoffs have been announced so far this year. That is the second-highest total through May since 2009. The labor market is still standing, but it is starting to wobble.

President Trump and President Xi are talking again. The two leaders spoke for 90 minutes on Thursday in a call focused almost entirely on trade. Trump called it “very good” and said it ended on a “positive conclusion for both countries.” Now, the U.S. and China are heading back to the table. Talks will include Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and U.S. Trade Rep Jamieson Greer. The goal? To de-escalate the trade war that’s seen tariffs reach as high as 145% on Chinese goods and 125% on American exports. But don’t expect smooth sailing. The U.S. says China is dragging its feet on rare earth exports. China’s frustrated over U.S. student visa restrictions and warnings about Chinese chips. Both sides are still trading jabs, but at least they’re talking again. Trump even said Xi invited him and Melania to visit China and he accepted.

Gemini is going public. The crypto exchange founded by Cameron and Tyler Winklevoss has confidentially filed for an IPO in the U.S., aiming to join a wave of crypto firms hitting the public markets. The company hasn’t finalized the number of shares or the price range yet. A listing will depend on the SEC’s review and market conditions. By filing confidentially, Gemini can test investor interest without revealing financials upfront. The move comes just months after the SEC closed its investigation into the firm without recommending any action. It also follows a major crypto momentum shift in Washington. With President Trump pushing pro-crypto policies, firms like Circle and Galaxy Digital are seizing the moment. Gemini just hired a new CFO from Affirm to get ready for Wall Street.The message is clear: crypto wants back in the spotlight.

Meta is in talks to invest more than $10 billion into Scale AI. If it closes, it would be the biggest AI deal Meta has ever made and one of the largest private tech investments on record. Scale AI helps companies like Microsoft and OpenAI label training data for AI models. Most of the work is done by contractors. The company made $870 million last year and expects $2 billion in revenue this year. Meta already joined Scale's $1 billion Series F round. The two also worked together on Defense Llama, a military AI model built using Meta’s Llama 3. This deal would make Scale a key player in Meta’s AI future.

The chip giant’s revenue jumped as its data center business soared 73% now making up nearly all of its sales. Demand for AI chips is still red-hot, and Nvidia is right at the center of it. CEO Jensen Huang called global demand “incredibly strong,” even with new export rules cutting them off from China’s $50 billion market. The U.S. blocked Nvidia’s H20 chip sales there, forcing the company to take a $4.5 billion hit. But it didn’t stop the growth. Microsoft is scaling up Nvidia’s latest chips fast, and profits still surged. The stock popped after hours, and it’s now back near all-time highs. Bottom line: Nvidia’s AI dominance isn’t slowing down.

OPINION
Matt Allen’s Take

There’s a quiet crisis unfolding in Japan’s financial system. It hasn’t made front-page headlines in the U.S., but it should. Because what’s happening over there could ripple across the entire global economy, and fast.

The Bank of Japan just posted a record ¥28.6 trillion in unrealized bond losses. That’s nearly $200 billion. To put it bluntly, they’re sitting on one of the largest paper losses in central banking history. And while the word “unrealized” might make it sound harmless, this isn’t just a technicality. It’s a sign of deep structural stress inside one of the world’s most important financial institutions.

Here’s what’s going on. For the past decade, the Bank of Japan has pursued aggressive monetary easing by buying up massive amounts of government bonds. The goal was to keep interest rates pinned to the floor, encourage borrowing, and kickstart growth in an economy that has struggled with deflation and stagnation for years. But low interest rates come at a cost. When rates eventually rise, as they have in Japan over the last 12 months, the value of those older bonds collapses.

That’s exactly what just happened. Yields on Japan’s 10-year bonds have doubled from 0.73 percent to 1.5 percent. And because bond prices move inversely to yields, the Bank of Japan is now underwater on a huge portion of its holdings. These are not small positions. The BOJ owns more than half of all Japanese government debt. This isn’t a leaky faucet. It’s a broken pipe.

Now, some will argue that it’s all just accounting. The central bank hasn’t actually sold the bonds, so the losses aren’t “real.” But here’s the truth. The losses are already limiting what the Bank of Japan can do next. For the first time ever, they’re not handing over any of their profits to the government. Instead, they’re setting aside 100 percent of their income to buffer against more losses. That’s a complete reversal from last year, when they returned nearly ¥2 trillion in profits back to the state. In other words, they’re bracing for more pain.

Japan’s central bank isn’t the only institution feeling the squeeze. Major Japanese insurers like Nippon Life are also sitting on massive paper losses. Some of them have already realized losses just to rebalance into higher-yielding assets. Foreign hedge funds, usually eager to scoop up Japanese bonds when they’re cheap, are holding back. The volatility is simply too high. Nobody wants to catch a falling knife.

So what does this mean for you and me?

As of May 2025, foreign investors hold more than $9 trillion in U.S. government debt. And the single largest foreign holder is Japan, with $1.13 trillion in U.S. Treasuries. When Japanese bond yields rise, Japanese investors no longer need to go abroad to find returns. They can get them at home. That creates a powerful incentive to sell off U.S. Treasuries and rotate capital back into domestic bonds. It’s safer, it’s local, and now it pays more.

That has serious consequences for the U.S. economy. If Japan steps back as a major buyer of Treasuries, demand drops. And when demand drops, the U.S. has to offer higher yields to attract buyers. That means higher interest rates across the board. Think higher mortgage rates, higher business lending costs, and more expensive government borrowing. For example, if the U.S. wants to issue a new batch of 10-year Treasury bonds and Japan is no longer bidding, we may have to offer a full percentage point more in interest just to get those bonds sold. That adds up quickly. And it puts upward pressure on rates throughout the economy.

But the potential fallout doesn’t stop with bonds. Japanese institutions are huge players in global equity and credit markets. If they begin liquidating foreign assets or reducing global exposure, it could cause sudden drops in stock markets and tightening credit conditions worldwide.

One of the biggest risks is the yen carry trade. For years, investors have borrowed in yen at ultra-low interest rates and used that money to invest in higher-yielding assets overseas. This strategy works when Japanese rates stay near zero. But now that yields are rising, that cheap funding source is vanishing. Investors have to close those positions. That means selling stocks, selling foreign bonds, and converting the proceeds back into yen.

Picture a global hedge fund that borrowed billions in yen to buy U.S. tech stocks and corporate bonds. As Japanese interest rates climb, that debt becomes more expensive to maintain. So the fund starts selling off assets to pay back the loan. When multiple institutions do this at once, the selling pressure can spark a wave of volatility. This is exactly what happened during past episodes like the 2008 financial crisis and the 2016 flash crashes, where carry trade unwinds amplified already-fragile markets. So when I say Japan’s bond market troubles could hit us here at home, I’m not exaggerating. A shift in Japanese yields has the power to raise our borrowing costs, spook our equity markets, and disrupt the flow of capital around the world. This is how a local issue becomes a global shock.

The world is watching Japan, not just to see how it handles the fallout, but because its next move could shape global markets for years to come..

UPCOMING
What You Need To Watch

On Monday, I’ll be checking the Atlanta Fed’s GDPNow update. It’s not always perfect, but it’s one of the better tools for estimating where real GDP is tracking in real time. If it jumps or dips, markets tend to react.
On Monday, Apple’s WWDC keynote hits at 1PM ET. This isn’t just about new iOS features. Investors watch closely for announcements tied to AI, hardware, or services that could reshape Apple’s growth story.
On Wednesday, May CPI drops. This is the main inflation print everyone trades off of.
On Wednesday, there’s also a 10-year Treasury auction. Sounds boring, but I always check how strong demand is. Weak demand means yields spike and that can pressure equities.
On Thursday, May PPI lands. It’s the inflation report nobody talks about until it surprises. Since it reflects wholesale prices, it can tip off where CPI is headed next.

TIP
Why I Always Pay Attention to Sector Trends

One thing I’ve learned over the years is that even the best companies can underperform if they’re in the wrong sector at the wrong time. That’s why I always pay close attention to sector trends. For example, during rising interest rate environments, financial stocks like banks often do well, while high-growth tech names can struggle. In a recession, defensive sectors like healthcare and consumer staples tend to outperform because demand stays steady. Understanding these cycles helps me position my portfolio with the wind at its back. I’m not trying to time sectors perfectly, but I do want to be invested where the odds are in my favor.

CHART
INVEST IN THE FUTURE

TERM
Operating Cash Flow

Operating cash flow shows how much cash a company’s core business is actually generating. I always check this because strong earnings can sometimes hide weak real-world performance.

Take a company like Home Depot. Let’s say they report $8 billion in net income but only generate $5 billion in operating cash flow. That gap would make me dig deeper to see what’s going on. Maybe inventory built up or customers delayed payments. On the other hand, if they generated $10 billion in operating cash flow, that’s a sign of strong, healthy operations. As a rule of thumb, I like to see operating cash flow at least equal to or slightly higher than net income over time. These numbers are just examples, not actual figures.