Why are Japanese bond yields rising and what does it mean for Indian investors?

Economic Times

22-05-2025

Japanese government bond (JGB) yields surged sharply on Thursday, following comments from a Bank of Japan (BoJ) board member, Asahi Noguchi, who dismissed the need for immediate central bank intervention to stabilize the bond market
ADVERTISEMENT The yield on Japan's benchmark 10-year bond rose by 5.5 basis points to 1.57%, its highest level since March 28. Super-long bonds also saw strong upward movement, with the 20-year yield climbing to 2.595% and the 30-year yield touching 3.17%, indicating growing pressure on the long end of the yield curve.
'At times, central banks must take action to stabilise markets. I don't think we're seeing a situation where we need to do so,' Noguchi said in response to the surge in super-long bond yields.
His remarks came amid calls from market participants urging the BoJ to ramp up purchases of super-long bonds or reconsider its ongoing tapering program.According to Abhishek Bisen, Senior EVP & Fund Manager – Fixed Income at Kotak Mutual Fund, the recent spike in JGB yields is rooted in both domestic and global headwinds.Japan is attempting to unwind a decade-long soft monetary policy just as other global economies are easing rates. Compounding the situation is a rise in core inflation to a two-year high in April 2025 and a slowdown in Japanese exports to the US, aggravated by new trade tariffs.
ADVERTISEMENT Further stress came from weak demand at the 20-year bond auction, which saw reduced investor appetite, pushing yields on the 20-, 30-, and 40-year JGBs up by 15–17 basis points.Bisen notes, "The 20-year bond auction conducted by the Bank of Japan received lower demand by the investors which resulted in a spike in bond yields."
ADVERTISEMENT Political uncertainty has also added to the volatility. As Bisen points out, "Japan's Prime Minister commenting on the fiscal situation being worse than that of Greece at the height of the European crisis makes the situation trickier." Such remarks have intensified investor concerns, triggering a sell-off in longer-term Japanese bonds.
Also read: Can India bond yields fall lower than that of US? Uday Kotak wonders
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The developments in Japan come on the heels of Moody's recent downgrade of the US credit rating to Aa1, with U.S. debt now exceeding $36 trillion. This downgrade led to a rise in U.S. Treasury yields — the 10-year yield climbed above 4.50%, while the 30-year moved past 5%.According to Bisen, the actions of Japanese investors, who are one of the largest foreign holders of U.S. Treasuries will be a key factor to monitor.
ADVERTISEMENT "The rising bond yields in Japan may have a negative impact on the US bonds," he said, highlighting that any reduction in Japanese demand for U.S. Treasuries could exert upward pressure on American yields.Despite the global volatility, India's debt market has remained stable, supported by strong macroeconomic fundamentals."The Indian bond market rallied with yields trading around 6.20% for new benchmark 10-year government bonds," said Bisen, adding that the market is primarily reacting to domestic factors rather than external shocks.
India's economic environment remains favorable, with headline inflation at 3.16% in April 2025, its lowest level since July 2019, and surplus liquidity in the banking system, providing headroom for further interest rate cuts. Given this backdrop, Bisen advises a long-duration strategy for fixed-income investors: "Given the expectation of further rate cuts and prevailing / expected liquidity conditions in the Indian economy, we recommend fixed investors to adopt a long duration strategy to benefit from fall in interest rates."While the global bond markets face heightened uncertainty—from Japanese monetary policy to U.S. creditworthiness—the Indian market is currently on more solid footing. There's no immediate threat to the domestic outlook, though Bisen points out that the upcoming India-U.S. trade deal in the next few months will be a key event to track.As global bond yield movements continue to send ripples across asset classes, Indian investors would do well to stay informed—but not alarmed.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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