Japan PM Pledges to Rein in Debt Issuance

Japan’s 10-year government bond yield fell to around 2.9% on Tuesday, nearing six-week lows after the latest 20-year bond auction attracted record demand, reflecting strong investor interest in higher-yielding debt. Japanese yields have climbed to multi-decade highs earlier this month following a global bond selloff driven by persistent energy-related inflation amid the conflict in the Middle East. Japan’s worsening fiscal outlook also contributed to rising yields as Prime Minister Sanae Takaichi pursued expansionary fiscal policies, although she has repeatedly sought to reassure markets that the government would avoid adding to the debt burden. On the monetary policy front, the Bank of Japan is widely expected to keep interest rates unchanged next week, with Governor Kazuo Ueda anticipated to provide further guidance on the timing of the next rate hike.

Japan’s 10-year government bond yield declined to around 2.9%, hovering near five-week lows after Prime Minister Sanae Takaichi pledged to “appropriately” manage annual debt issuance, emphasizing the importance of fiscal discipline and economic resilience in supporting the yen and maintaining stable public finances. She highlighted the need to balance economic growth with fiscal responsibility as Japan faces a debt burden of approximately $7 trillion, the largest among advanced economies, in an effort to reassure investors. Meanwhile, Bank of Japan Governor Kazuo Ueda said underlying inflation was already close to the central bank’s 2% target, signaling a mildly hawkish stance. He also attributed inflationary pressures to a moderate economic recovery and tight labor market conditions.

Japanese Prime Minister Sanae Takaichi on Monday vowed to “appropriately” control the scale of annual debt issuance, stressing that fiscal discipline and economic resilience are key to bolstering confidence in the yen and stabilising public finances. Addressing parliament, she underscored the need to balance growth with responsibility as Tokyo grapples with a $7 trillion debt burden, the largest among advanced economies, and renewed turbulence in the bond market. Her remarks aim to reassure investors after the recent selloff highlighted vulnerabilities in Japan’s fiscal outlook.