Japanese bonds fall on bets election win for PM Takaichi to usher in more stimulus

TOKYO: Japanese government bonds (JGBs) slid on Monday on growing bets that Prime Minister Sanae Takaichi’s party will secure an electoral mandate to pursue tax cuts and expanded stimulus.

The 20-year JGB yield climbed 2.5 basis points (bps) to 3.2%.

The five-year yield rose 2.5 bps to 1.680%.

Yields move inversely to bond prices. Takaichi’s ruling Liberal Democratic Party (LDP) is likely to score a large victory in a snap lower house election that she called for February 8, a survey by the Asahi newspaper showed.

“The JGB market is likely to see movements unwinding the recent bull-flat trend in anticipation of a ruling party landslide,” Ataru Okumura, a senior strategist at SMBC Nikko Securities, said in a report.

Long-term JGB yields have climbed sharply since early November, hitting successive records, on concerns that spending by the Takaichi administration will worsen the nation’s already stretched finances.

Short-term yields have also faced upward pressure as the Bank of Japan raised its interest rates in December and signalled it’s ready to tighten policy further.

Japan will continue to face market jitters over fiscal policy, with the risk of further tax relief raising the prospect of a renewed selloff in government bonds and the yen, former top currency diplomat Hiroshi Watanabe told Reuters.