Key Takeaways
- Japan and the U.S. reaffirmed close FX coordination following a two-hour meeting between Finance Minister Katayama and Treasury Secretary Bessent, covering AI security and critical minerals.
- OpenAI has capped its revenue-sharing payments to Microsoft (MSFT) at $38 billion, a move that could save the AI startup approximately $97 billion by 2030.
- Japanese Government Bond (JGB) yields reached a 29-year high, with the 10-year yield climbing to 2.545% as domestic markets track declines in U.S. Treasurys.
- LG Electronics (066570) shares surged 20% on optimism surrounding its "physical AI" and robotics initiatives, even as the broader KOSPI index erased a 2.27% intraday gain.
- China’s central bank fixed the yuan reference rate at 6.8426, marking its strongest level since March 2023 as Beijing seeks to stabilize the currency.
Japan-US Economic Diplomacy and Security
Japanese Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent concluded a high-level two-hour meeting in Tokyo, focusing on foreign exchange coordination and the resilience of global supply chains. The officials reaffirmed their commitment to the joint statement established last year, which emphasizes cooperation in the face of market volatility and geopolitical instability in the Middle East.
Discussions also delved into advanced AI and critical minerals, with Katayama noting that both nations share a strategic direction in securing supply chains. Katayama expressed concerns that advanced AI models, such as Mythos, could represent a major threat if not properly managed. Additionally, she observed that while China is currently behind in high-tech fields, it could potentially close the gap within six to twelve months.
Corporate AI Strategies and Funding
In a significant shift for the AI industry, OpenAI has reportedly revised its revenue-sharing agreement with Microsoft (MSFT). The new terms cap OpenAI's total payments to the tech giant at $38 billion, providing the startup with a massive financial cushion as it scales. The Information reports that this revision could result in total savings of $97 billion for OpenAI by the end of the decade.
Simultaneously, Alphabet (GOOGL) is moving to diversify its funding sources by preparing a yen-denominated bond offering. The "Samurai bond" deal is expected to include 3-year and 15-year tranches, aimed at financing the company’s massive AI infrastructure requirements. This move highlights a broader trend of global tech leaders tapping the Japanese market to lock in long-term funding.
Bond Markets and Currency Volatility
The Japanese bond market experienced a sharp sell-off, pushing yields to levels not seen in decades. The 10-year JGB yield rose to 2.545%, while the 5-year yield reached 1.915% and the 30-year yield climbed to 3.780%. Traders are increasingly tracking the decline in U.S. Treasurys, while Katayama declined to speculate on whether the Bank of Japan would implement a rate hike in June.
In the currency markets, the U.S. dollar strengthened against the yen, trading up 0.18% at 157.49. Meanwhile, the People’s Bank of China (PBOC) set the yuan’s reference rate at 6.8426, its strongest fix in over three years. This move is seen as an effort to anchor the yuan as markets weigh the risks of a prolonged closure of the Strait of Hormuz, which has kept oil prices elevated.
Equity Markets and Regional Developments
South Korean markets saw extreme divergence as LG Electronics (066570) shares jumped 20% following bullish analyst reports on its physical AI and robotics platforms. Hyundai Motor (005380) also saw a gain of 7.4%. Despite these individual successes, the KOSPI index turned lower late in the session, erasing a significant 2.27% intraday advance.
In the U.S., the S&P 500 and Nasdaq reached fresh record highs, though gains were tempered by rising energy costs. Separately, the White House confirmed that President Donald Trump will undergo annual medical and dental checkups at Walter Reed on May 26, and reports suggest he is currently delaying a decision on beef import tariff cuts. In Hong Kong, emergency services responded to a truck-bus crash outside a shopping centre that left 10 people injured.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.