TOKYO – Japanese government bonds (JGBs) held firm on Thursday as the market calmed ahead of this weekend’s upper house elections, a political event that could significantly reshape Japan’s fiscal policy direction.
Earlier in the week, long-dated bond yields surged to record highs amid fears that Prime Minister Shigeru Ishiba’s ruling coalition might lose its majority. A potential shift in power toward opposition parties supporting consumption tax cuts has spooked fixed-income investors already sensitive to rising inflation and fiscal risks.
While the 20-year yield and 30-year yield had jumped to 2.65% and 3.20%, respectively, on Tuesday, they have since retreated. On Thursday, the 20-year yield was flat at 2.57%, while the 30-year yield edged up slightly by 0.5 basis point to 3.07%.
The benchmark 10-year JGB yield eased by 0.5 basis point to 1.565%, after reaching its highest level since October 2008 earlier this week at 1.595%.
Analysts say the bond market has largely priced in the potential loss of a ruling majority, but the path forward remains uncertain.
Novartis Raises 2024 Outlook on Strong Q2 Drug Sales
“The possibility of the ruling coalition losing its majority in this weekend’s upper house election has already been mostly priced in, but it is unclear what the coalition framework will be after that,” said Miki Den, Senior Rates Strategist at SMBC Nikko Securities.
Meanwhile, investors appear hesitant to open new positions ahead of the vote’s outcome. This caution is reflected in benchmark 10-year JGB futures, which remained flat at 137.96 after dipping to a multi-month low of 137.70 on Wednesday.
Shorter-term yields were also lower, with the five-year yield and two-year yield each falling 0.5 basis points, to 1.075% and 0.78%, respectively.
The election outcome could trigger significant changes in Japan’s fiscal strategy, especially if tax-cut advocates gain ground. Until then, markets are expected to stay range-bound as political and economic uncertainty loom large.
