Japan's 30-year bond yield hits record high ahead of key election
Synopsis Japanese government bond yields surged, with the 30-year yield hitting a record high amid fiscal health concerns ahead of national elections. The potential defeat of the ruling coalition, which could lead to sales tax cuts, fueled market anxieties. Rising living costs and sliding approval ratings for Prime Minister Ishiba further contributed to the bond market's unease. Japan's 30-year government bond fell on Tuesday, with the yield hitting a record high, on concerns about the nation's fiscal health ahead of a closely monitored national election at the end of this week.
ADVERTISEMENT The 30-year JGB yield touched an all-time high of 3.195%, before easing to 3.18%, up 2.5 basis points (bps) from the previous session.
Yields move inversely to prices.
The market weighed the risk of the defeat of the Liberal Democratic Party and its coalition partner Komeito at the upcoming upper house election on July 20. A potential defeat could empower opposition parties that have pledged in their campaign platforms to cut or abolish the sales tax. The 20-year JGB yield rose to as high as 2.64%, its highest since November 1999, the 10-year JGB yield rose to as high as 1.595%, its highest level since October 2008.
ADVERTISEMENT If the LDP-led coalition loses the majority, the 10-year bond yield could rise to as high as 1.8%, the highest level since mid-2008, said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management. "This indicates how the fiscal health has worsened and prices have risen since then," Inadome said.
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"Now the Bank of Japan owns about half of the JGBs and that has capped the yields from rising further. Back then, the BOJ's ownership was much smaller." Local media reported that Japan's ruling coalition was struggling in the election campaign and could lose its majority.
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Prime Minister Shigeru Ishiba's administration has seen approval ratings slide as the rising cost of living, including the soaring price of Japan's staple rice, hit households.
Yields on shorter-dated bonds rose to their highest levels since early April, with the two-year JGB yield rising 1 bp to 0.785% and the five-year yield climbing 1 bp to 1.080%.
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