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Japan's Kato Aware Market Views Over Debt Driving Bonds
Japan's Kato Aware Market Views Over Debt Driving Bonds

Bloomberg

time18-07-2025

  • Business
  • Bloomberg

Japan's Kato Aware Market Views Over Debt Driving Bonds

Japan's finance minister said he's aware of market views that recent bond market volatility has been driven by doubts over the country's future fiscal management, pledging to respond to these voices ahead of Sunday's crucial elections. Yields surged this week after polls signaled a potential defeat for Prime Minister Shigeru Ishiba's Liberal Democratic Party. A loss of majority for the ruling bloc, which is in the minority in the lower house, risks destabilizing economic policy and driving up government spending.

Japan Bond Rout Touches New Pain Point as 10-Year Yield Rises
Japan Bond Rout Touches New Pain Point as 10-Year Yield Rises

Yahoo

time15-07-2025

  • Business
  • Yahoo

Japan Bond Rout Touches New Pain Point as 10-Year Yield Rises

(Bloomberg) -- Japan's long-term government debt yield touched the highest level since 2008, as a raft of election tax-cut pledges puts investors on edge and risks higher costs all around in the country. Why Did Cars Get So Hard to See Out Of? Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests LA Homelessness Drops for Second Year Tuesday's rise of 2.5 basis points in the 10-year yield — to 1.595% — while modest, is a reminder that it's not just bonds of 20 to 40 years that are under pressure, even if the most extreme moves have been in these super-long maturities. The uptick shows the increased vulnerability of Japan's bond market after its central bank started pulling back from massive purchases that placed a protective cushion around yields for more than a decade. An upper house election on Sunday that could see the ruling coalition lose its majority is further fueling concerns that the government will loosen its grip on its finances even more, adding to pressure on yields. 'The biggest story in Japan this week must be the spiking yields' that is playing up again, said Amir Anvarzadeh, Japan equity strategist at Asymmetric Advisors Pte. 'Bond vigilantes are finally focusing on Japan,' where debt to gross domestic product is elevated, a quarter of the annual budget is set aside for refinancing debt that was issued at lower rates, and politicians are talking about tax cuts to secure power, he said. Prime Minister Shigeru Ishiba's government is promising to ramp up spending through a familiar approach of cash handouts, while opposition parties are largely campaigning on much more expensive plans to lower the sales tax. The latest polls suggest the ruling coalition is in danger of losing its majority in the upper house, further complicating its ability to press ahead with policy and putting more pressure on it to cut taxes. If the upward movement in yields continues after the election, calls may increase for authorities to do more. Already, the Bank of Japan has announced plans to slow down its withdrawal from the market and the Finance Ministry has trimmed its issuance of debt at the super-long end. The government is closely monitoring market moves of Japan's sovereign debt, according to Economic Revitalization Minister Ryosei Akazawa, who added that fiscal concerns won't stop the government from making the necessary budget allocations to realize its economic goals. He expects the country's fiscal health to improve as a more growth-oriented economy emerges, projecting the kind of messaging bond vigilantes often jump on. The selloff in Japan's $7.7 trillion bond market is already spilling over into major debt markets, amplifying ructions driven by fears that governments around the world are spending more than they can afford. Japan's 20- and 30-year yields both climbed to their highest levels since 1999 on Tuesday. The 10-year bond yields are particularly watched because they are seen as having a direct impact on household and business spending through higher mortgage rates and other borrowing costs. Atsushi Takeda, chief economist at Itochu Research Institute, said businesses broadly don't take on debt in the super-long end, hence the rise in 10-year bond yields is something 'we must keep a close eye on.' Earlier spikes in yields in April and May slowed growth in loans by the nation's banks, hinting at the caution they generate for both borrowers and lenders. Average long-term loan rates among domestic banks in April hit the highest since 2009 at 1.428% before edging down in May. The latest gain in yields may push rates up again. The 10-year yield is being driven by instability in super-long bonds due to demand concerns and declining liquidity, said Takahiro Otsuka, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. 'It can't be said with certainty that the 10-year yield will stop rising at around the 1.6% level.' Any runaway increase in this yield would be detrimental to Japan's finances, according to Mizuho Financial Group Inc.'s chief executive officer. If it goes beyond 3% or so, that would hurt the budget, according to Masahiro Kihara, CEO of Japan's third-biggest bank, who spoke in a Bloomberg Television interview. What Bloomberg Strategists say: 'The common thread between US, European and Japanese long-term debt is that fiscal policy is carrying more weight than monetary policy in terms of setting market yield genie is out of the bottle and not going back in any time soon.' — Mark Cranfield, MLIV Strategist. Read more on MLIV. 'The environment for selling bonds will continue,' said Tadashi Matsukawa, head of bond investments at PineBridge Investments Japan Co. 'Buybacks from the Ministry of Finance could be one of the key measures to stabilize yields.' For now, policymakers will likely try to play down the vulnerability of the market. Japan's Finance Minister Katsunobu Kato said on Monday that bond yields are decided by market participants, and he would refrain from commenting on specific moves. Bank of Japan Governor Kazuo Ueda has said the nation's super-long yields have a limited impact on the real economy compared to shorter-term debt. Developments will be carefully monitored, he said. Meanwhile, some market observers see the gains as a pre-election spike rather than a trend that threatens economic growth or the nation's government. The consensus among JGB investors is that any implementation of a consumption tax cut will be temporary and limited, said Ryutaro Kimura, a senior fixed-income strategist at AXA Investment Managers Japan Ltd. in Tokyo. 'Upward pressure on interest rates is likely to peak out once uncertainty over fiscal policy recedes after the election.' --With assistance from Yoshiaki Nohara, Masahiro Hidaka, Aya Wagatsuma, Gregory Turk and Paul Jackson. (Updates throughout with additional comments.) Thailand's Changing Cannabis Rules Leave Farmers in a Tough Spot The New Third Rail in Silicon Valley: Investing in Chinese AI 'Our Goal Is to Get Their Money': Inside a Firm Charged With Scamming Writers for Millions 'The Turbulence Is Brutal': Four Shark Tank Businesses on Tariffs Will Trade War Make South India the Next Manufacturing Hub? ©2025 Bloomberg L.P. 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