JGB yields fall as market braces for nationalist win at ruling party election

TOKYO: Yields on Japan’s government bonds with shorter maturities fell on Friday as the market braced for the victory of hardline nationalist Sanae Takaichi in Japan’s ruling party leadership race.

The two-year JGB yield, the most sensitive to the Bank of Japan’s (BOJ) policy, fell 1.5 basis points (bps) to 0.325%.

The five-year yield fell 2 bps to 0.44%.

The 10-year JGB yield fell 1.5 bps to 0.815%. Japan’s ruling Liberal Democratic Party (LDP) will hold one of the most unpredictable leadership contests in decades on Friday.

Results from the first round of voting are expected during market hours in the Asian afternoon.

Takaichi is the most vocal opponent of policy normalisation among the three frontrunners and her victory could, therefore, push down bond yields.

“Investors made positions to prepare for a possible victory of Takaichi,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.

“Whoever wins the race, the timing of the BOJ’s rate increase could be delayed. But because Takaishi has sent the strongest message about the BOJ’s policy, the market wanted to take positions to brace for her win.”

Japan’s 10-year bond yield hits over 7-week low as rate-hike prospects fade

Takaichi, an advocate of deceased former premier Shinzo Abe’s “Abenomics” stimulus policies, said recently the BOJ hiked rates too early and it would be “stupid” to raise rates now.

Polls suggest three candidates have the edge in a record nine-strong field: Takaichi 63; ex-environment minister and heir to a political dynasty Shinjiro Koizumi, 43; and former defence minister Shigeru Ishiba, 67.