TOKYO: Japan’s government bonds (JGBs) fell after reports of a possible cut to food tax renewed fiscal concerns ahead of a snap election expected to be held next month.
The yield on 30-year debt climbed 10 basis points to 3.58%, its highest level since its debut, while rates on 10-year and 20-year notes rose to their highest levels since 1999.
The moves come after a Kyodo report said the ruling bloc is mulling a tax plan that will include the sales tax suspension, with plans to implement it as soon as January next year.
The Centrist Reform Alliance, a merger between Japan’s largest opposition party and a former ruling coalition partner, is also looking to cut the sales tax while maintaining fiscal discipline and not issuing additional deficit bonds.
“Both ruling and opposition parties are advocating for consumption tax cuts, increasing the risk of fiscal expansion regardless of the outcome of the election,” said Eiichiro Miura, senior general investment manager at Nissay Asset Management.
Prime Minister Sanae Takaichi, who assumed the post on Oct 21, 2025 and said she is filled with great determination to press ahead tenaciously and work resolutely for the sake of the nation and the Japanese people, is set to lay out her plans for an election expected by many to be held as soon as Feb 8.
Investors are also bracing for a 20-year bond auction today.
Garfield Reynolds, MLIV team leader, said: “While jawboning and geopolitical tensions acted to improve the yen’s outlook, Japanese government bonds face no similar reassurances.”
Yields are surging higher in Tokyo with the prime minister expected to seek a stronger mandate for expansionary fiscal policies, something that cements the narrative that JGBs are turning into a one-way bet on lower bond prices.
Expectations that a tax cut would fuel consumption also lifted some food-related stocks in Tokyo yesterday.
Meanwhile, the yen edged higher as traders sought haven assets after US President Donald Trump threatened fresh tariffs on select European nations. — Bloomberg
