Japan Yield Gains as Takaichi Vows Fiscal Expansion

Japan’s 10-year government bond yield climbed to around 3.12% on Tuesday, staying close to its highest level in three decades as Prime Minister Sanae Takaichi continued to pursue fiscal expansion despite concerns over a weak yen and elevated bond yields. Speaking to parliament, Takaichi pledged to lower the consumption tax on food and promote domestic investment while assuring markets that the government would fund the measures without issuing new bonds. Investors are also awaiting a series of economic indicators this week, including August figures for wages, the current account and household spending, as well as September data on consumer confidence and machine tool orders. Meanwhile, minutes from the Bank of Japan’s September meeting showed policymakers placing greater emphasis on containing inflation above the central bank’s 2% target. The discussion kept expectations for another rate hike this year alive, although officials provided limited guidance on the timing.

Japan’s 10-year government bond yield was little changed around 3.09% on Monday, remaining near 30-year highs ahead of an extraordinary Diet session and a policy address from Prime Minister Sanae Takaichi. Japanese government bonds have faced persistent selling pressure since Takaichi’s election, as her administration’s ambitious spending plans and proposed tax cuts have raised concerns over the country’s worsening fiscal outlook. Investors also turned their attention to a series of economic reports due this week, including August wage growth, current account and household spending data, as well as September figures for consumer confidence and machine tool orders. Last week, a summary of opinions from the Bank of Japan’s September meeting indicated a stronger focus on preventing inflation from exceeding the central bank’s 2% target, suggesting another rate increase could come this year, though it offered little guidance on the timing ahead of policy decisions in October and December.

Japan’s 10-year government bond yield slipped below 3.1% on Friday, easing from 30-year highs and tracking a retreat in Treasury yields as concerns over France’s fiscal and political outlook boosted demand for safe-haven assets. Still, Japanese yields remained supported by strong economic data, with Tokyo’s core inflation rising 2.7% in September and exceeding the Bank of Japan’s 2% target for the first time in nine months. However, a summary of opinions from the central bank’s September meeting provided fewer hawkish signals than investors had expected. The summary indicated that policymakers had shifted their focus toward preventing inflation from overshooting the target, suggesting another rate hike could come this year, though it offered little guidance on the timing. Japanese bonds also remained under pressure from the government’s ambitious spending plans and deteriorating fiscal conditions.