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Yields on Japan’s benchmark government bonds rose to their highest level since 2007 as investors fretted over Prime Minister Sanae Takaichi’s spending plans and braced themselves for an interest rate increase.
The 10-year yield on Thursday climbed 0.02 percentage points to 1.91 per cent in early trading, approaching levels at which analysts said domestic banks could begin fundamentally adjusting their bond-buying strategies. Yields move inversely to prices.
The rise takes 10-year yields to levels last seen before the collapse of Lehman Brothers sparked a global financial crisis and ushered in an era of lower interest rates worldwide.
Thursday’s move echoed broader jitters in global bond markets, which have been jolted by renewed speculation that the Bank of Japan is preparing to raise interest rates at its meeting on December 18-19.
Yields on 30-year JGBs rose to a record high of 3.44 per cent in early trading on Thursday.
Minoru Kihara, the government’s top spokesperson, said on Thursday that the administration was “closely watching” market moves in long-term interest rates.
“It is important to comprehensively understand the impact of rising interest rate effects on the economy,” he said.
Yields on two-year bonds, which are most sensitive to interest rate expectations, rose to a 17-year high of 1.01 per cent on Wednesday and held there on Thursday.
Weighing on sentiment is an impending auction of about ¥700bn ($4.5bn) in 30-year JGBs on Thursday. Traders said they expected the bonds to attract lacklustre demand, with Japanese life insurers and pension funds appearing reluctant to buy.
Investors have been concerned about Takaichi’s $135bn spending plan, Japan’s largest stimulus package since the Covid-19 pandemic.
Shoki Omori, chief desk strategist at Mizuho, said JGB markets were steadily absorbing the risk of Takaichi’s fiscal spending and were reflecting doubts about a proposed government efficiency drive.
He added that, while past JGB moves had limited impact on global bond markets, this time around “the JGB sell-off will have an effect on global rates”.