Japan 10-Year Yield Falls as Election Looms

Japan’s 10-year government bond yield rose about 5 basis points to 2.27% on Monday following the ruling Liberal Democratic Party’s historic victory. Led by Prime Minister Sanae Takaichi, the LDP secured a two-thirds supermajority in the lower house, giving her a clear mandate to pursue expansionary fiscal policies. This will likely to weigh on the yen and Japanese government bonds while potentially boosting equities. Takaichi’s coalition won 352 of the 465 seats in the House of Representatives, according to public broadcaster NHK, with the LDP alone capturing 316 seats. The outcome reinforced expectations for looser fiscal policy and potential tax cuts, developments that had unsettled Japanese financial markets in recent weeks amid concerns over the country’s rising debt. Takaichi is also expected to advance a conservative agenda, including tougher immigration rules and tighter land ownership regulations.

Japan’s 10-year government bond yield dropped to around 2.22% on Friday, hitting a three-week low as investors prepared for this weekend’s lower house elections. Prime Minister Sanae Takaichi called the snap vote to secure backing for increased spending and potential tax cuts, with her ruling coalition widely expected to win decisively. Concerns over how the government would fund its ambitious spending plans and offset potential revenue losses weighed on markets, amid uncertainty over Japan’s fiscal outlook. Investors are also awaiting the Q4 GDP report next week, expected to rebound following a sharp contraction in the previous quarter. Meanwhile, this week’s 10-year bond auction showed softer demand amid election jitters, with an average yield of 2.249%, up from 2.095% at the prior sale.

Japan’s 10-year government bond yield eased to around 2.23% on Thursday, remaining range-bound for two weeks now as investors positioned ahead of lower house elections this weekend. Prime Minister Sanae Takaichi’s ruling LDP is expected to gain seats as she seeks voter support for increased spending and other policy initiatives. Japanese bonds and the yen have faced pressure since Takaichi took office, with her push for expansionary fiscal policies raising concerns over debt-funded spending and the country’s fiscal outlook. Investors are also watching Japan’s Q4 GDP report due next week, expected to rebound after the prior quarter’s sharp contraction. Meanwhile, this week’s 10-year bond auction showed softer demand amid election jitters, with an average yield of 2.249%, up sharply from 2.095% at the previous sale.