The Tamesis
Japanese Prime Minister Sanae Takaichi’s announcement of snap elections in just two weeks dealt a heavy blow to the government bond market.
Investors are unimpressed with plans to cut taxes, stimulate the economy and increase defense spending, given that the country has one of the highest debt levels in the world.
Bond markets tumbled on Tuesday after she pledged to match her political opponents and suspend food taxes for two years, which could cost the government 5 trillion yen ($32 billion) in annual revenue.
See also: Prabowo central bank move sends rupiah to new lows
Yields on the 20-, 30- and 40-year bonds hit record highs as traders said there were no buyers. Analysts said it was a vote of no confidence in the country’s economic plans.
Ten-year Treasury yields rose 18.5 basis points in two days, the biggest jump since Japan relaxed its cap on benchmark bond yields in 2022.
The 20-year Treasury yield surged 28 basis points this week, reaching a record high of over 3.4%, while the 30-year and 40-year Treasury yields surged 40 basis points, exceeding 3.8% and 4% respectively.
Analysts say the election has become a race to see who can spend the most money.
“Electoral gambling in the high market and talk of food tax cuts and fiscal expansion quickly changed the narrative,” Tareck Horchani, head of prime brokerage trading at Maybank Securities in Singapore, told Reuters. He noted that Japan’s 30-year government bond yield is currently 35 basis points higher than Germany’s.
“Markets no longer view ultra-long JGBs as anchor assets and they are repricing closer to the global fiscal risk curve,” he said.
“This is not just a technical sell-off, this is a long-term regime-style repricing driven by politics, positioning and a structural buyer vacuum.”
The stock market is also down
Bond markets collapsed on Tuesday and stocks retreated after the yen came under months of pressure.
Investors have been pulling money as interest rates began to rise amid uncertainty about how high they might go.
Inflation has also been above the Bank of Japan’s target for nearly four years, so Takako’s spending vow stoked concerns that things could spiral out of control. These concerns weighed on the currency.
But its impact may be contained. The longest-term debt is heavily held by insurance companies, who hold it as long-term liabilities and tend to hold it until maturity.
Japan’s Chief Cabinet Secretary said on Tuesday that the government is paying close attention to long-term interest rate trends.
If the 10-year bond yield continues to rise by 31 basis points, it will be the largest monthly increase in more than two decades.
Global bond markets were also in turmoil on Tuesday, with European and U.S. bonds selling off. U.S. President Donald Trump threatens to take control of Greenland Gold and silver prices have soared amid recent geopolitical volatility.
See also:
Japanese Prime Minister Takaichi will hold polls on spending and defense issues on February 8
Bets on snap election push Japanese stocks to record high
Japan calls China’s dual-use export ban ‘unacceptable’
Japan will test mining “rare earth mud” from the deep seabed
China says it will approve “civilian” license for rare earths
China ramps up trade pressure on Japan over Taiwan remarks
Japan signs rare earth and nuclear power deals with Trump
China restricts rare earth exports to defense companies and chipmakers
China ramps up trade pressure on Japan over Taiwan remarks
Auto exports decline in third quarter, Japan’s economy shrinks
