Japanese long-term bond yields slip as trade talks flounder

SINGAPORE: Japanese government bonds rose slightly on Wednesday, pushing yields at the long-end of the curve down, as protracted trade negotiations and uncertainty around upcoming national elections spurred a bid for safe-haven bonds.

The September contract, the main contract for JGB futures, was down 5 sen at 139.17 yen.

The 30-year JGB yield fell 0.5 basis point (bp) to 2.885%.

Support for Japanese Prime Minister Shigeru Ishiba’s government has slipped ahead of key upper house elections slated for July 20, an NHK poll showed on Monday.

Ishiba’s cash handout plan to help the public deal with inflation has failed to impress voters.

Japanese investors are also dealing with the worry the country has yet to secure a trade deal with the United States after nearly three months of negotiations.

Tokyo has been scrambling to convince the US to scrap a 25% tariff on Japanese cars and a 24% reciprocal tariff on other Japanese imports.

The reciprocal tariff has been paused until July 9, but President Donald Trump has indicated a deal may not happen by then.

Trump has also suggested he could impose a tariff of “30% or 35% or whatever the number is that we determine” on imports from Japan - well above the tariff rate he announced on April 2 and then later paused.

“I get the impression that the market is starting to pay attention to the reality that the outlook for Japan-US trade negotiations has become even more uncertain, with concrete numbers now being released,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corporation. The 10-year JGB yield rose 0.5 bp to 1.415% while 10-year interest rate swaps were at 1.25%.

They have traded in a wide range between 0.8% and 1.4% this year.

Traders said some of the buying of long-term bonds was led by short-covering ahead of a 30-year bond auction scheduled for Thursday.

At the short end of the rates markets, the overnight call money rate was quoted at 0.477% and the one-month Japanese yen treasury bill fell 0.4 bp to 0.454%.

The 20-year JGB yield fell 0.5 bp to 2.315%.