Japan Bond Yields Climb on Spending Worries as Cabinet Reshuffle Looms
Japanese government bond yields rose on Tuesday, with the 10-year yield hitting a near-three-decade high, as investors fretted over expanded government spending and awaited a cabinet reshuffle.
Japanese government bond yields climbed on Tuesday, with the 10-year yield reaching its highest level since September 1996, as investors weighed the implications of expanding government spending and looked ahead to a cabinet reshuffle by Prime Minister Sanae Takaichi.
The benchmark 10-year JGB yield rose as much as 4.5 basis points to 3.025%. The five-year yield added 4 basis points to a record 2.315%. Bond yields move inversely to prices.
Market participants pointed to growing unease over how the government plans to fund a proposed consumption tax cut and household payouts. The government was set to finalise an outline for the measures on Tuesday without specifying funding sources, a move that could keep alive concerns over the country's already strained finances.
"As talks on the planned cuts to food taxes have been progressing, worries about the resources for the tax cuts grew," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.
JGBs also faced upward pressure from a global bond selloff. The 10-year US Treasury yield hit the key psychological level of 5% on Monday for the first time since October 2023.
Investors are awaiting the outcomes of central bank meetings in the United States and Japan this week, as well as the Takaichi administration's cabinet reshuffle. Alongside Finance Minister Satsuki Katayama, key posts include the minister for the health ministry, which oversees the Government Pension Investment Fund (GPIF), said Takashi Fujiwara, chief fund manager at Resona Asset Management's fixed income investment division. Whether the GPIF increases its allocation of JGBs is seen as key to the direction of JGB yields and the yen.
Earlier in the day, the finance ministry held an auction for 20-year bonds. The outcome was moderately firm and in line with market expectations, market players said. The 20-year JGB yield rose 4 basis points to 3.855%, the 30-year yield added 3.5 basis points to 4.100%, and the two-year yield rose 1.5 basis points to 1.85%.