JGB yields rise on risk-on shift as slide in commodities pauses

TOKYO: Japanese government bond yields rose on Tuesday as risk-on sentiment took hold after a slump in commodities prices paused and stocks jumped.

The benchmark 10-year JGB yield climbed 2.5 basis points (bps) to 2.255%.

The two-year yield rose 2 bps to 1.28%, its highest since May 1996.

Gold and Asian stocks rebounded on Tuesday as wild swings in metals markets in recent days gave way to greater stability and Japan’s Nikkei jumped 4% to a record high.

Strategists said demand at a 10-year JGB auction held on Tuesday was moderately firm despite concerns around worsening fiscal health ahead of the national election on the coming weekend.

Japanese media have reported Prime Minister Sanae Takaichi’s party is likely to score a landslide victory in the lower house election, heightening the chance the country will continue to pursue big spending and tax cuts.

“The media reports about the election outcome are within our expectations, but what worries us more is ill-considered remarks from Takaichi,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

Takaichi on Saturday cited some benefits of a weaker yen, in stark contrast to her finance ministry’s threats to intervene to support the battered currency.

Her comments sent the JGB yields higher on Monday as a weaker yen would be likely to raise import costs and drive inflation, pressuring the Bank of Japan to raise interest rates.

“If she repeats these kinds of remarks, that would become an upward pressure on yields,” Inadome said. Yields on super-long dated bonds fell, with the 30-year yield slipping 1 bp to 3.63%.

The yield on the 40-year JGB fell 1.5 bps to 3.915%.