Bank of Japan set to lift rates to highest level since mid-90s Japanese government bond yields have climbed sharply in recent weeks amid growing investor unease over the fiscal stance of Prime Minister Sanae Takaichi’s administration.

Japanese government bond yields have climbed sharply in recent weeks amid growing investor unease over the fiscal stance of Prime Minister Sanae Takaichi’s administration. Bne IntelliNews #BankOfJapan #InterestRates #FiscalPolicy #JapaneseBonds #SanaeTakaichi

Buyers flee Japanese bonds as political, fiscal risks rise By Rocky Swift and GregorStuart Hunter TOKYO (Reuters) -Japanese government bonds tumbled on Wednesday, sending benchmark yields to near 17-year highs, as traders priced in increased political risks and a hazy outlook for the central bank’s policy normalisation path. In a sign of how nervous markets are, the Ministry of Finance’s first sale of super-long government debt since a bruising electoral defeat for Prime Minister Shigeru Ishiba logged the weakest demand in almost 14 years. In a whirlwind day of news, the United States and Japan announced a trade deal, speculation swirled that Ishiba planned to resign, and a Bank of Japan (BOJ) official warned of an economic slowdown. The 10-year JGB yield jumped as much as 10 basis points (bps) to 1.6%, marking its biggest move in months and the highest level since October 2008. Super-long term JGB yields hit record highs in May and are back near those levels as concerns mount over Japan’s precarious finances. "We’re seeing a possible buyers’ strike playing through," said Chris Weston, head of research at broker Pepperstone. "Inflation is running far too hot for where interest rates are. The question is why would you buy at these levels?" he said, adding he expected the selloff could extend to UK gilts too. Sunday’s defeat for Ishiba’s Liberal Democratic Party and coalition partner Komeito follows their loss of a majority in the more powerful lower house last year. Opposition parties have advocated for tax cuts and increased government spending to help households deal with inflation. Ishiba plans to resign, a source close to the prime minister said. Local media reported the move could happen by the end of next month. However, the prime minister later said there was no truth to the media reports about his intentions. "Attention will soon turn to the next prime minister’s policy agenda and any signals of recalibration from the BOJ as JGB yields climb," said Charu Chanana, chief investment strategist at Saxo. After the election defeat, investors expect whoever replaces the fiscally conservative Ishiba will support calls for more government spending, widening an already bloated fiscal deficit at nearly 2-1/2 times the size of Japan’s economy. The election result also puts the Bank of Japan in a double bind as prospects of increased spending could keep inflation elevated while potentially prolonged political paralysis and the impact of the trade war provide compelling reasons to go slow on rate hikes. "The market’s first instinct was to mark up political risk premia," said Shoki Omori, chief desk strategist at Mizuho Securities, referring to reports of Ishiba’s resignation. Investors may struggle to position for the uncertainties around the multiple risks, and "consequently, the super-long sector may continue to exhibit subdued conditions through August, and possibly into September," he said. Ten-year Japanese government bond futures tumbled as much as 1.06 yen to 137.54 yen, their lowest since March 28. Japan’s finance ministry has scaled back its issuance plan for super-long bonds in response to the surge in JGB yields and poor demand at auctions. ($1 = 147.0300 yen)

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Japanese 40-year bond auction sees weakest demand in nearly a year Investing.com -- The recent auction of 40-year Japanese government bonds (JGBs) experienced the lowest demand in almost a year, indicating investor caution as global yields on ultralong bonds rise. This event has accelerated an increase in superlong JGB yields, which occurred on Wednesday. This pattern is part of a broader trend that shows concern over fiscal deficits in major economies, such as the U.S. and Japan. Despite the movement in bond yields causing some unease, analysts believe that the increase in Japanese yields is likely to be short-lived and manageable. The Ministry of Finance in Japan sold approximately 500 billion yen ($3.46 billion) of 40-year bonds at a yield of 3.135%. The bid-to-cover ratio, an essential indicator of demand, dropped to 2.21 in Wednesday’s sale from 2.92 in March. This is the lowest level since July 2024, and a lower ratio signifies weaker demand. After the auction, yields on 30-year JGBs momentarily spiked 11 basis points to 2.940% in a notably sharp move before settling back to 2.900%. The yield on 20-year JGBs rose to as much as 2.425%, while the yield on the 40-year bonds hit 3.385%. The increase in ultralong JGB yields mirrors similar trends in U.S. Treasury yields and indicates a decrease in domestic investor interest for longer durations. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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Are Rising Japanese Government Bonds the next time bomb for US Bondholders? Investing.com -- Japanese institutions and investors have long been a reliable source of demand for U.S. Treasuries, but a relentless surge in Japanese government bond yields is flashing a warning for U.S. bondholders—raising the risk that Japanese money could start flowing home just as global appetite for U.S. debt wobbles. “There could be a trigger point where Japan’s investors suddenly repatriate their capital from the US and into Japan. Some traders sense that this point is coming, which is why USD/JPY is being offered as JGB yields rise,” Macquarie analysts said in a recent note. Japanese entities, including official reserves, are the largest foreign holders of U.S. Treasury securities, with roughly $1.13 trillion as of Q1 2025, the analysts said. After years of ultra-low yields, however, Japan’s bond market is on the up and up, narrowing the gap with U.S. bonds, reducing the incentive to keep capital in the U.S. is fading. The 30-year JGB yield jumped to record high of 3.185% recently, while the 40-year yield touched an all-time peal of 3.635%. this awakening from hibernation in JGBs has the Bank of Japan’s fingerprints all over it. The BoJ has shown more flexibility in its yield curve control as inflation in Japan ticks higher, rising JGB yields are making domestic bonds more attractive. The risk, Macquarie warns, is that if JGB yields are allowed to rise far enough, “the incentive to export capital to the US becomes an incentive to import capital back from the US.” This could trigger a sudden rebalancing of Japanese institutional portfolios out of Treasuries and into JGBs, putting the dollar and U.S. rates at risk. The pressure is already showing up in markets: the U.S. 20-year bond auction recently saw weak demand from foreign buyers, sending yields to a two-year high and weighing on the dollar. While the U.S. is not alone in facing higher yields—Bunds and Gilts have also sold off—Macquarie argues the dollar is being singled out because foreign investors are “overweight with US exposure” after years of outperformance The Bank of Japan is unlikely to intervene with rate cuts or a return to strict yield curve control, preferring instead to signal financial stability and step up JGB purchases only if yields spike too quickly. The Bank of Japan, however, is unlikely to intervene directly with rate cuts or resumption of strict yield curve control, it will likely signal a commitment to financial stability and step up JGB purchases if yields rise too quickly. But with Japanese investors facing a more attractive domestic bond market and global risks rising, the risk of capital flight from U.S. Treasuries—and fresh volatility for the dollar and U.S. rates—remains front and center. Which stock should you buy in your very next trade? AI computing powers are changing the stock market. Investing.com's ProPicks AI includes 6 winning stock portfolios chosen by our advanced AI. In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. Which stock will be the next to soar?

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Japanese government bonds ’within range’ as investment target, says Norinchukin’s new head By Anton Bridge, Miho Uranaka and Tomo Uetake TOKYO (Reuters) -Japanese government bonds (JGBs) are now a natural investment target over the medium and long term for Norinchukin Bank as the return of inflation and higher interest rates have made them more attractive, its new chief executive said. Since last year, the Japanese investment heavyweight has been selling off tens of billions of dollars worth of foreign bonds after incurring massive losses on its holdings when interest rates in the U.S. and Europe rose higher than expected. High foreign exchange hedging costs also support JGB acquisitions, Taro Kitabayashi told Reuters in an interview. He added it was too early to say how President Donald Trump’s imposition of tariffs and the resulting impact on the global economy would affect Norinchukin’s portfolio. Norinchukin, Japan’s main financial institution for farm, forestry and fishery cooperatives, is one of Japan’s largest institutional investors and its strategy is closely watched by market participants. Foreign government bonds had previously made up around 50% to 60% of its around 45 trillion yen ($315.50 billion) of market assets, Kitabayashi said, as it sought out higher returns abroad over the years of ultra-low interest rates in Japan. In the nine months ended December 2024, it sold off 12.8 trillion yen of low-yielding assets, mostly U.S. and European government bonds. In their stead, Norinchukin is considering new investments, including in JGBs, equities, real estate, private equity and infrastructure, but has not set targets, Kitabayashi said. "We could scarcely invest in Japanese government bonds when interest rates were negative and low, but now interest rates are higher, they naturally count as among our investment targets," Kitabayashi said. It expects to book a 1.9 trillion yen loss for the 12 months ended on March 31, but has forecast a modest profit of between 30 billion and 70 billion yen in the year to March 2026 on returns from new investments and higher interest rates in Japan. ($1 = 142.6300 yen) Which stock should you buy in your very next trade? AI computing powers are changing the stock market. Investing.com's ProPicks AI includes 6 winning stock portfolios chosen by our advanced AI. In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. Which stock will be the next to soar?

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