Japanese bonds pick up as traders assess PM candidates’ policies

TOKYO: Japanese government bonds (JGBs) picked up on Wednesday as traders considered the economic policies of the leading candidates to become the nation’s next prime minister.

The 10-year JGB yield fell 1 basis point (bp) to 1.645%. The five-year yield edged 0.5 bp lower to 1.220% after reaching a 17-year high on Monday.

Bond yields move inversely to prices. JGBs have been under pressure in recent months due to global concerns over widening government deficits, domestic political uncertainty and declining bond purchases by the Bank of Japan.

Thirty-year yields touched a record high of 3.285% earlier this month after fiscal hawk Shigeru Ishiba said he would step down as prime minister, setting up a party vote on October 4 to replace him.

Sanae Takaichi, a fiscally dovish contender for the premiership, on Tuesday said the government should issue more JGBs if necessary to combat household inflation.

Shinjiro Koizumi, another contender, said the government should fund spending packages with expected increases in tax revenues and spending cuts.

A Koizumi victory is looking more likely, which could lead to a quick unwinding of so-called “Takaichi trades,” betting on higher stocks, a weaker yen and a steepening of the JGB yield curve, according to Yusuke Matsuo, a senior market economist at Mizuho Securities.

In addition, Takaichi appears to have moderated her expansionist tone by “steering clear of directly commenting on BOJ monetary policy or the possibility of lowering the consumption tax rate,” Matsuo wrote in a note.

The 20-year JGB yield fell 1.5 bps to 2.63%, while the 30-year yield slid 1 bp to 3.170%.