Bird’s-eye view of central Tokyo at sunrise, including Tokyo Tower.
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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 a cut in the food sales tax offering could worsen the country’s fiscal situation.
Long-term yields rose more than five basis points to 4%, the highest level since the introduction of the 40-year maturity.
Short-term yields have also risen sharply. The yield on Japan’s 10-year government bond rose 6 basis points to 2.3%, its highest level since 1999, while the 20-year yield rose nearly 9 basis points to 3.35%.
Seloff came a day after Prime Minister Sanae Takaichi announced on Friday that he plans to dissolve parliament and call a snap election for February 8, setting the stage for a campaign that will focus heavily on economic policy.
“Ultra-long JGB yields will be pushed higher not only by structural supply and demand imbalances, but also by repricing of duration and risk premium as markets accept an accommodative fiscal stance and sustained inflation,” said Masahiko Lu, senior strategist for fixed income at Stat Street.
This revaluation has revived a familiar pattern in the market, he added. “It’s a classic revived”Takaichi trade“Strong Nikkei dynamics, weak JGB and yen,” Lu told CNBC.
It was a repeat of the volatility seen in October last year, when Japanese markets responded to comments from Takaichi and policy signals that pointed to an easing of fiscal policy that stabilized later, he added.
He added that the current move has strong technical and sentiment echoes rather than a signal of structural distress.
According to Loo, the yield curve is likely to remain steep before stabilizing in the first half of this year as issuance patterns adjust and domestic banks return as buyers.
Similarly, analysts at Crédit Agricole Corporate and Investment Bank said markets were pricing in a long-term push toward more aggressive fiscal policy under Takaichi. They stated this position as a move away from what Takaichi described.the shackles of extreme austerity,” could turn into a huge deficit.