Feature/OPED
Mitigating Risk of World Turning Japanese
By Nicolas Rigois and Steve Brice
The collapse of Japan’s Nikkei stock index from almost 39,000 in 1989 to 8,000 in 2008 has been well documented and was presumably traumatic for many Japanese investors. However, the decline in the 10-year government bond yield from a peak of over 8% to less than 0% (i.e. a negative yield) has arguably been even more traumatic. While declining yields have, by definition, led to higher bond prices and therefore healthy returns for investors over the years, for today’s investors planning to reach their future retirement goals, they are hugely challenging. For retirees, bonds – either directly or indirectly through savings and wealth planning products – have historically been the cornerstone of any portfolio due to their income-generating and low-risk characteristics. Of course, for a Japanese investor, their income-generating characteristic has totally disappeared.
For investors outside Japan, it may be worth looking at what drove Japan’s market dynamic over the past 30 years. A key characteristic of Japan’s economy during this period was a massive increase in debt, particularly government debt. Rising debt levels have many implications, but there are two that are particularly important. First, it means that even small changes in interest rates and yields can have a large impact on economic activity and inflation. The second, and a related, implication is authorities’ tolerance for deflation is reduced as deflation increases the real value of debt, making it harder to service the debt. This means that the central bank is likely to have a bias to cut interest rates and, if necessary, pursue quantitative easing at every sign of economic slowdown.
For Japan’s income-seeking investors, such a monetary policy bias leaves them with a dilemma: in order for their savings to earn a desired yield, they need to assume additional risk in one of the following ways:
Stay in JPY-denominated bonds, but compromise on the credit quality of their investment
Stay in JPY, but turn to high dividend-paying equities
Invest overseas and assume currency risk
This third option is widely implemented and has led to brutal bouts of Yen appreciation in risk-off scenarios when Japanese investors repatriated their capital back home. Of course, this behaviour can, in turn, lead to increased volatility of JPY-returns.
“So what?” you might be asking yourself. “How does this affect investors outside Japan?”
First, this predicament is no longer uniquely Japanese. European and Swiss investors also live in a zero/negative interest rate environment (although it is a comparatively newer phenomenon there).
Second, the world has seen debt levels rise dramatically since the Global Financial Crisis. Therefore, while there are good arguments for higher bond yields in the coming months due to tight labour markets and reduced spare capacity across major economies, particularly in the US, there is also the risk that the long-term decline in bond yields that started in the 1980s is going to continue in the coming years.
While the probability of an outcome is one input into any decision, so too should be the impact of the outcome. For instance, walking across a road blindfolded at 2am may involve a low probability of being hit by a car, the potential consequences of doing so are severe enough for most of us (we hope) to not take the risk.
For an investor, let’s consider the risk of investing in bonds today. Of course, bond yields could rise, leading to a corresponding decline in prices. However, if you hold the bonds to maturity and the underlying issuer does not default, you will get your money back, along with interest payments along the way. Of course, inflation may erode the return on investment from a purchasing power perspective, but in this scenario the economy is probably doing pretty well and, therefore, other areas of your portfolio (equities), as well as your career prospects (earning potential), are likely to offset the pain significantly. Meanwhile, higher yields will increase the reinvestment returns going forward which will likely more than offset any short-term pain.
Arguably, the greater risk is not investing. Of course, by staying out of the bond market, you would avoid the short-term pain if bond yields rise sharply. However, if bond yields continue to decline in a secular fashion, it means that more investors will be faced with the Japanese income-seekers’ dilemma and need to take greater investment risk to achieve the returns to fulfil their retirement income needs. Alternatively, you will need to invest a much larger amount of money. Meanwhile, if bond yields decline on the back of economic weakness, then equities are unlikely to do well and career risks may be on the rise.
While we do not expect bond yields to fall significantly over the next 6-12 months, investors worried about this outcome over the longer term have ways to mitigate the risk.
For instance, an investor can identify an issuer with the desired credit quality offering the target yield and then invest a proportion of one’s allocation to the longest dated bond available from the issuer. This approach would require a slight shift away from conventional investment thinking where one tries to minimize portfolio volatility. Longer-dated bonds come with high duration (price sensitivity to interest rate moves) and therefore tend to see wider price swings compared to shorter-dated ones. However, in the context described above, that is the price you pay to mitigate reinvestment risks i.e. the risk that an investor holding shorter-dated bonds could be facing even lower yielding investment opportunities when the current bond matures.
Interestingly, accounting rules provide an exception to the so-called ‘mark-to-market’ gold standard that tends to accentuate a portfolio’s volatility. Bond investors can draw lessons from the “hold-to-maturity” accounting treatment and ignore short-term price fluctuations, since in the long-term they stand to receive the principal and regular coupons. Hence, if investors are reasonably confident about the credit quality of the issuer, extending bond maturity and locking in higher returns is a strategy worth considering to mitigate the risk of being confronted with the Japanese investors’ dilemma.
Nicolas Rigois is Head of Wealth Management Product and Sales (Singapore) and Steve Brice is Chief Investment Strategist for the Private Bank at Standard Chartered
By Luke Kyohere
The global payments landscape is undergoing a rapid transformation. New technologies coupled with the rising demand for seamless, secure, and efficient transactions has spurred on an exciting new era of innovation and growth. With 2025 fast approaching, here are important trends that will shape the future of payments:
1. The rise of real-time payments
Until recently, real-time payments have been used in Africa for cross-border mobile money payments, but less so for traditional payments. We are seeing companies like Mastercard investing in this area, as well as central banks in Africa putting focus on this.
2. Cashless payments will increase
In 2025, we will see the continued acceleration of cashless payments across Africa. B2B payments in particular will also increase. Digital payments began between individuals but are now becoming commonplace for larger corporate transactions.
3. Digital currency will hit mainstream
In the cryptocurrency space, we will see an increase in the use of stablecoins like United States Digital Currency (USDC) and Tether (USDT) which are linked to US dollars. These will come to replace traditional cryptocurrencies as their price point is more stable. This year, many countries will begin preparing for Central Bank Digital Currencies (CBDCs), government-backed digital currencies which use blockchain.
The increased uptake of digital currencies reflects the maturity of distributed ledger technology and improved API availability.
4. Increased government oversight
As adoption of digital currencies will increase, governments will also put more focus into monitoring these flows. In particular, this will centre on companies and banks rather than individuals. The goal of this will be to control and occasionally curb runaway foreign exchange (FX) rates.
5. Business leaders buy into AI technology
In 2025, we will see many business leaders buying into AI through respected providers relying on well-researched platforms and huge data sets. Most companies don’t have the budget to invest in their own research and development in AI, so many are now opting to ‘buy’ into the technology rather than ‘build’ it themselves. Moreover, many businesses are concerned about the risks associated with data ownership and accuracy so buying software is another way to avoid this risk.
6. Continued AI Adoption in Payments
In payments, the proliferation of AI will continue to improve user experience and increase security. To detect fraud, AI is used to track patterns and payment flows in real-time. If unusual activity is detected, the technology can be used to flag or even block payments which may be fraudulent.
When it comes to user experience, we will also see AI being used to improve the interface design of payment platforms. The technology will also increasingly be used for translation for international payment platforms.
7. Rise of Super Apps
To get more from their platforms, mobile network operators are building comprehensive service platforms, integrating multiple payment experiences into a single app. This reflects the shift of many users moving from text-based services to mobile apps. Rather than offering a single service, super apps are packing many other services into a single app. For example, apps which may have previously been used primarily for lending, now have options for saving and paying bills.
8. Business strategy shift
Recent major technological changes will force business leaders to focus on much shorter prediction and reaction cycles. Because the rate of change has been unprecedented in the past year, this will force decision-makers to adapt quickly, be decisive and nimble.
As the payments space evolves, businesses, banks, and governments must continually embrace innovation, collaboration, and prioritise customer needs. These efforts build a more inclusive, secure, and efficient payment system that supports local to global economic growth – enabling true financial inclusion across borders.
Luke Kyohere is the Group Chief Product and Innovation Officer at Onafriq
In a heartfelt statement released today, the Conference of Nigeria Political Parties (CNPP) has extended its warmest congratulations to Ghana’s President-Elect, emphasizing the importance of learning from Ghana’s recent electoral success as Nigeria gears up for its 2027 general elections.
In a statement signed by its Deputy National Publicity Secretary, Comrade James Ezema, the CNPP highlighted the need for Nigeria to reclaim its status as a leader in democratic governance in Africa.
“The recent victory of Ghana’s President-Elect is a testament to the maturity and resilience of Ghana’s democracy,” the CNPP stated. “As we celebrate this achievement, we must reflect on the lessons that Nigeria can learn from our West African neighbour.”
The CNPP’s message underscored the significance of free, fair, and credible elections, a standard that Ghana has set and one that Nigeria has previously achieved under former President Goodluck Jonathan in 2015. “It is high time for Nigeria to reclaim its position as a beacon of democracy in Africa,” the CNPP asserted, calling for a renewed commitment to the electoral process.
Central to CNPP’s message is the insistence that “the will of the people must be supreme in Nigeria’s electoral processes.” The umbrella body of all registered political parties and political associations in Nigeria CNPP emphasized the necessity of an electoral system that genuinely reflects the wishes of the Nigerian populace. “We must strive to create an environment where elections are free from manipulation, violence, and intimidation,” the CNPP urged, calling on the Independent National Electoral Commission (INEC) to take decisive action to ensure the integrity of the electoral process.
The CNPP also expressed concern over premature declarations regarding the 2027 elections, stating, “It is disheartening to note that some individuals are already announcing that there is no vacancy in Aso Rock in 2027. This kind of statement not only undermines the democratic principles that our nation holds dear but also distracts from the pressing need for the current administration to earn the trust of the electorate.”
The CNPP viewed the upcoming elections as a pivotal moment for Nigeria. “The 2027 general elections present a unique opportunity for Nigeria to reclaim its position as a leader in democratic governance in Africa,” it remarked. The body called on all stakeholders — including the executive, legislature, judiciary, the Independent National Electoral Commission (INEC), and civil society organisations — to collaborate in ensuring that elections are transparent, credible, and reflective of the will of the Nigerian people.
As the most populous African country prepares for the 2027 elections, the CNPP urged all Nigerians to remain vigilant and committed to democratic principles. “We must work together to ensure that our elections are free from violence, intimidation, and manipulation,” the statement stated, reaffirming the CNPP’s commitment to promoting a peaceful and credible electoral process.
In conclusion, the CNPP congratulated the President-Elect of Ghana and the Ghanaian people on their remarkable achievements.
“We look forward to learning from their experience and working together to strengthen democracy in our region,” the CNPP concluded.
By Kenechukwu Aguolu
The proposed tax reform, involving four tax bills introduced by the Federal Government, has received significant criticism. Notably, it was rejected by the Governors’ Forum but was still forwarded to the National Assembly. Unlike the various bold economic decisions made by this government, concessions will likely need to be made on these tax reforms, which involve legislative amendments and therefore cannot be imposed by the executive. This article highlights the purposes of taxation, the qualities of a good tax system, and some of the implications of the proposed tax reforms.
One of the major purposes of taxation is to generate revenue for the government to finance its activities. A good tax system should raise sufficient revenue for the government to fund its operations, and support economic and infrastructural development. For any country to achieve meaningful progress, its tax-to-GDP ratio should be at least 15%. Currently, Nigeria’s tax-to-GDP ratio is less than 11%. The proposed tax reforms aim to increase this ratio to 18% within the next three years.
A good tax system should also promote income redistribution and equality by implementing progressive tax policies. In line with this, the proposed tax reforms favour low-income earners. For example, individuals earning less than one million naira annually are exempted from personal income tax. Additionally, essential goods and services such as food, accommodation, and transportation, which constitute a significant portion of household consumption for low- and middle-income groups, are to be exempted from VAT.
In addition to equality, a good tax system should ensure equity and fairness, a key area of contention surrounding the proposed reforms. If implemented, the amendments to the Value Added Tax could lead to a significant reduction in the federal allocation for some states; impairing their ability to finance government operations and development projects. The VAT amendments should be holistically revisited to promote fairness and national unity.
The establishment of a single agency to collect government taxes, the Nigeria Revenue Service, could reduce loopholes that have previously resulted in revenue losses, provided proper controls are put in place. It is logically easier to monitor revenue collection by one agency than by multiple agencies. However, this is not a magical solution. With automation, revenue collection can be seamless whether it is managed by one agency or several, as long as monitoring and accountability measures are implemented effectively.
The proposed tax reforms by the Federal Government are well-intentioned. However, all concerns raised by Nigerians should be looked into, and concessions should be made where necessary. Policies are more effective when they are adapted to suit the unique characteristics of a nation, rather than adopted wholesale. A good tax system should aim to raise sufficient revenue, ensure equitable income distribution, and promote equality, equity, and fairness.
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