Japan to cut super-long-term bond issuances amid rising yields
TOKYO (Kyodo) -- The Japanese government said Friday it plans to reduce issuances of super-long-term bonds from July in a rare review of its original program in the middle of a fiscal year amid concern over a recent surge in yields.
But the total amount of bonds scheduled for issuance in the current fiscal year through March 2026 is projected to remain unchanged from the initial plan at 176.9 trillion yen ($1.2 trillion), as the Finance Ministry seeks to increase sales of short-term bonds.
The revised plan was presented to bond market participants during a meeting hosted by the ministry and is likely to be formalized, subject to adjustment if necessary, an official said.
The move comes as yields on 20-, 30- and 40-year bonds have surged since April, partly due to concerns over Japan's fiscal health following growing calls from opposition parties to cut taxes.
In its latest policy meeting earlier this week, the Bank of Japan, the biggest holder of government bonds, decided to slow the pace of its debt-buying reduction from next year, aiming to prevent a sharp rise in yields and broader market turbulence from rapid tapering.
During the previous gathering ended May 1, some BOJ board members expressed the view that the government bond markets had been "divided by maturity," as seen in the significant rise in yields on super-long-term bonds, according to the minutes released Friday.
Some members noted that the number of participants in the super-long-term bond markets "was limited in the first place" and that the rise in the yields of those bonds was attributable to factors such as a decline in investor demand, the minutes also said.
Analysts have said reduced purchases by key institutional investors, including life insurers, were among the reasons for the jump in yields, which move inversely to prices.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Japan Times
3 hours ago
- Japan Times
Japan surprises with plan for bigger cut to superlong bond issuance
Japan is planning to cut the issuance of superlong bonds this year by more than earlier reported as it tries to restore calm to a market spooked by recent record highs in yields. The Finance Ministry proposed reducing the issuance of 20-, 30- and 40-year bonds by a total of ¥3.2 trillion ($22 billion) through the end of March 2026, according to a plan presented by the ministry during a meeting with primary dealers on Friday. The latest plan from the ministry showed a reduction to 20-year bond issuance that is twice the size suggested in draft documents, underscoring the level of concern among policymakers over rising borrowing costs. A poorly received auction of 20-year bonds by Japan last month rippled through global markets that are on edge over the risks posed by rising government debt levels. To compensate for the cuts in superlongs, the ministry is considering boosting the issuance of shorter-term debt, particularly six-month U.S. Treasury bills, the plan showed. The extra reduction for the 20-year bond issuance is "positive for the bond market,' said Mari Iwashita, executive rates strategist at Nomura Securities. "Still, whether the decline in liquidity and high volatility in superlong bonds will improve will depend on if there is solid demand in the upcoming 20- and 30-year bond auctions.' The yen curve flattened, led by a drop in long-end rates after the release of the updated plan. The planned revision to the ministry's bond issuance plan this year is the second move by policymakers this week to respond to an imbalance between supply and demand that has emerged in Japan's bond market. Earlier this week, the Bank of Japan said it would slow down its withdrawal from the market from next year in a move aimed at ensuring stability. The BOJ still has a massive footprint in Japan's bond market, with ownership of around half the nation's outstanding central government debt and would still be buying around ¥2.1 trillion of bonds per month in early 2027 under its new plan. Still, the void created by the smaller BOJ purchases is ruffling bond market dynamics as it hasn't been filled by renewed buying from private-sector banks and life insurers. That gap has fueled much of the choppy downward pressure on bond prices and pushed up yields. The problems are particularly acute in the superlong end of the market due partly to separate changes to regulations that have limited the appeal of those bonds for banks while reducing the need for life insurers to buy them. Growing concerns over Japan's fiscal trajectory and expanding deficits globally including in the U.S. are also feeding into reluctance to pick up debt of 20 years or more. "The ministry publicized its revised plan sooner than anticipated to ward off the risk of a failed 20-year bond auction on June 24 and to avert the market volatility seen in May,' said Shoki Omori, chief strategist at Mizuho Securities. "In light of these announcements, superlong-term auctions are poised to regain a measure of stability.' Under the latest plan, total issuance of 20-year bonds will decrease by ¥1.8 trillion to ¥10.2 trillion over the fiscal year. Meanwhile, the supply of 30- and 40-year bonds is expected to be reduced by ¥900 billion and ¥500 billion, respectively. The ministry is also planning to cut offerings in liquidity-enhancing auctions for 15.5- to 39-year maturities by ¥100 billion per auction. A Finance Ministry official briefing reporters Friday said that the plan will likely become officially approved on Monday or Tuesday. He added that the last time the bond issuance plan was changed during the fiscal year for a reason unrelated to budgets was in 2009. On buybacks, the official said that some market participants had asked for purchases of superlong bonds while others said buybacks would hurt the autonomy of the market. The ministry isn't working on implementing buybacks for now, and it's not something that can be implemented soon. Even if the planned adjustments go ahead, the Finance Ministry will still face the challenge of finding alternative investors to absorb the slack as the central bank continues its tapering. Japan remains heavily reliant on bond issuance to finance spending. Japan's projected debt-to-gross domestic product ratio of 232.7% this year is still the highest among developed economies, feeding into concerns about the nation's fiscal stability. About a quarter of the initial budget for fiscal 2025 was allocated to debt-servicing costs alone, underscoring the country's vulnerability to rising yields. The concerns have been fanned by policy measures floated by political parties ahead of a national election in July. Parties are preparing to unveil costly proposals aimed at securing voter support. The ruling Liberal Democratic Party is planning yet another round of cash handouts to households. The Democratic Party for the People, a key opposition force, has called for cutting the national sales tax to 5% across the board, a more expensive choice, with additional bond issuance floated as a possible funding source. Against this backdrop, investors are in need of reassurance that the balance of supply and demand in the JGB market will be restored without yields rocketing.
Kyodo News
4 hours ago
- Kyodo News
FOCUS: Nippon Steel buyout spat hints at business fragility in U.S.
By Junko Horiuchi, KYODO NEWS - 7 hours ago - 13:07 | Japan, All U.S. President Donald Trump's bid to attract investment threatens to undermine the appetite for corporate spending in an ironic twist, with the 18-month saga over Nippon Steel Corp.'s buyout of United States Steel Corp. showing the growing vulnerability of businesses in the U.S. market, according to analysts. The U.S. administration's earlier blocking of the $14.1 billion takeover deal was clearly driven by political motives and corporate executives will no longer be able to make decisions regarding their U.S. operations based only business criteria, they said. The wrangling in the high-profile case could lead global companies to think twice about making sizeable investments and acquisitions in the world's largest economy, with many moving to reduce their exposure to the U.S. market. "I do think many companies are pausing investments and major capital expenditures, not only because of the Nippon-U.S. Steel deal but due to general uncertainty surrounding political and economic dynamics in Washington," said Zack Cooper, senior fellow at the American Enterprise Institute. Trump had repeatedly rejected Nippon Steel's plan to take full control of U.S. Steel. But Nippon Steel, the world's fourth-largest steel producer, and U.S. Steel, the 29th largest, said Wednesday following Trump's approval of the buyout plan that they had signed a national security agreement with the U.S. government and finalized the acquisition transaction. Under the deal, the Japanese steelmaker is obliged to invest $11 billion by 2028 on bolstering the U.S. steelmaker's operations, far more than the previously planned $2.7 billion. The U.S. government also obtained a golden share allowing it to veto key management decisions, such as when reducing investment, shedding production capacity in the United States or closing plants. Nippon Steel CEO Eiji Hashimoto told a press conference on Thursday that his company had learned from a year and a half of negotiations with the U.S. government that a flexible management strategy is required. The top executive said it had been believed that governments should not get involved in business deals. "But are strengthening their involvement in economic and business matters through industrial policy," he said. Trump's predecessor, Joe Biden, initially blocked the purchase of U.S. Steel on national security grounds, saying the manufacturing icon, based in Pittsburgh, Pennsylvania -- a key battleground state in the 2024 presidential election -- should be "American-owned and American-operated." Trump also opposed the deal during the presidential race, saying the acquisition of a minority stake in U.S. Steel would not cause any issues, but foreign ownership of the company would not be good psychologically. He ordered a new review of the deal by the Committee on Foreign Investment in the United States in April with a deadline for Trump to make a final decision initially set for June 5. "Because predictability is insanely low right now in the United States, Japanese companies are going to cut back the percentage of their business in the country," said Keisuke Hanyuda, the chief executive of Owls Consulting Group. While rising costs must be dealt with, "The last thing a business wants is to lose predictability," said Hanyuda, a former Japanese trade ministry official in charge of trade talks. Nippon Steel is betting on firm demand for high-tensile strength steel in the U.S. market, capitalizing on its advanced production technology for high-end steel plates used in products such as electric vehicles. The United States is one of three growth markets for the Japanese steelmaker, compensating for shrinking domestic demand. Under Trump, the steel, aluminum, auto and semiconductor sectors have been targeted by specific tariffs driven by political pressures and companies in these industries should consider other markets for growth to hedge their risks, analysts say. Earlier this month, Trump signed an order doubling the tariffs on steel and aluminum imports to 50 percent. "I think Japanese companies will have a difficult time purchasing famous American companies in sectors that President Trump prioritizes, such as autos, steel, aluminum, and chipmaking," Cooper at the American Enterprise Institute said, though investment in other sectors may still be viable. "But any Japanese company that is considering a major deal in the United States should develop a detailed political strategy before announcing a deal, lest they suffer similar roadblocks as Nippon Steel," he said. The United States remains a lucrative market with high growth potential but some global companies are beginning to reduce their reliance on it after the tariffs imposed by Trump, Hanyuda said. The European Union and the Association of Southeast Asian Nations, for example, have resumed economic partnership negotiations, while the EU is also looking at Japan, which is part of a trans-Pacific free trade pact that took effect in 2018 without the United States. Related coverage: U.S. Steel's strategic importance growing: Nippon Steel CEO Nippon Steel finalizes deal to make U.S. Steel wholly owned Trump effectively approves Nippon Steel's takeover of U.S. Steel
NHK
5 hours ago
- NHK
Japan to review JGB issuance plan amid super-long bond slump
Japan's Finance Ministry has called for reducing the issuance of super-long government bonds, amid slumping demand for those with maturities of over 10 years. It's rare for the ministry to review the bond issuance plan midway in a fiscal year. The ministry presented the proposal at a closed-door meeting with financial institutions that take part in auctions on Friday. The plan calls for trimming issuance of bonds, including maturities of 20 to 40 years, starting July. That means a reduction of 3.6 trillion yen, or around 24.7 billion dollars. The total value of bond issuance for this fiscal year would be kept unchanged at 176 trillion yen, or about 1.2 trillion dollars. The ministry would replace the bonds with short-term ones and more bonds for individual investors. The ministry makes an issuance plan for government bonds for every fiscal year and conducts auctions as planned. But the auction held in May for 20-year bonds saw the weakest demand since 2012. The ministry said it will work to ensure stable sales of JGBs by revising its issuance plan.
