Japan’s 40-year bond yield hits 4% record on fiscal jitters following election call
A bird’s-eye view of central Tokyo, including Tokyo Tower, at sunrise time.
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The yield on Japan’s 40-year government bond hit a record high on Tuesday amid a broad sell-off in government bonds as investors worried that proposed cuts to the food sales tax could worsen the country’s fiscal situation.
The long-term yield rose more than five basis points to 4%, the highest level since the introduction of the 40-year maturity.
Yields on short maturities also rose sharply. The 10-year Japanese government bond yield rose more than six basis points to 2.3%, its highest level since 1999, while yields on the 20-year maturity rose nearly 9 basis points to 3.35%.
The sale came a day after Prime Minister Sanae Takaichi said on Friday he planned to dissolve parliament and call early elections on February 8, setting the stage for a campaign expected to focus mainly on economic policy.
“Ultra-long JGB yields are pushing higher not only due to the structural supply-demand imbalance but also due to a new repricing of maturity and risk premium as markets absorb a more expansionary fiscal stance and persistent inflation,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management. he said.
He added that repricing revives a familiar market pattern. “This revived the classic ‘Takaichi trade’ dynamic of stronger Nikkei, weaker JGBs and yen,” Loo told CNBC.
He added that this was a repeat of the volatility seen in October last year, when Japanese markets reacted to Takaichi’s comments and policy signals pointing to looser fiscal policy, which later stabilized.
He added that the current move has strong technical and emotional repercussions rather than signaling structural distress.
The yield curve will likely remain steep through the first half of this year until it stabilizes as bond issuance patterns adjust and domestic banks return as buyers, Loo said.
Similarly, analysts at Crédit Agricole Corporate and Investment Bank said markets are increasingly pricing in a permanent shift towards aggressive fiscal policy under Takaichi. This stance aims to move away from what Takaichi describes as “shackles of extreme austerity“It could turn into bigger deficits.
