JGB yields rise on government spending worries, with eyes on cabinet reshuffle

TOKYO: Japanese government bond yields rose on Tuesday as investors weighed the expansion of government spending, while markets eyed Prime Minister Sanae Takaichi’s cabinet reshuffle.

The 10-year JGB yield rose as much as 4.5 basis points (bps) to touch 3.025%, its highest since September 1996.

The five-year yield rose 4 bps to record high of 2.315%. Yields move inversely to bond prices.

“As talks on the planned cuts to food taxes have been progressing, worries about the resources for the tax cuts grew,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

Japan’s government is set to finalise on Tuesday an outline for a consumption tax cut and payouts to households with no mention of how to fund the measures, a move that may keep alive market concerns over the nation’s already strained finances.

JGBs were also under upward pressure amid a global bond selloff.

The 10-year Treasury yield hit the key psychological level of 5% on Monday for the first time since October 2023.

While awaiting the outcome of central bank meetings in the US and Japan this week, markets are also looking out for the Takaichi administration’s cabinet reshuffle, strategists said.

Along with Finance Minister Satsuki Katayama, key posts include the minister for the health ministry, which oversees the Government Pension Investment Fund (GPIF), said Takashi Fujiwara, chief fund manager at Resona Asset Management’s fixed income investment division. Whether or not the GPIF would increase its allocation of JGBs is seen as key to the move in JGB yields and the yen.

The finance ministry held an auction for the 20-year bonds earlier in the day.

The outcome was moderately firm and in line with market expectations, market players said.

The 20-year JGB yield rose 4 bps to 3.855%.

The 30-year yield rose 3.5 bps to 4.100%.

The two-year yield rose 1.5 bps to 1.85%.