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Japan’s 40-year bond yield has surpassed 4 per cent as traders sell sovereign debt ahead of a snap election that could hand Prime Minister Sanae Takaichi a mandate to accelerate her stimulus plans.
The yield, which moves inversely to the price, of 40-year Japanese government bonds on Tuesday hit 4.01 per cent for the first time since their introduction in 2007.
A day earlier, Takaichi said she intended to dissolve parliament and hold an election on February 8, calling on Japan to give her a mandate for “major policy change”.
Bond yields have been under pressure since the prime minister unveiled a $135bn fiscal spending plan in November. Takaichi on Monday also confirmed her intention to suspend Japan’s 8 per cent sales tax on food for two years.
“Debt is 200 per cent of GDP and the government is seeking to expand fiscal spending,” said Yuxuan Tang, head of Asia macro strategy at JPMorgan Private Bank. “That will add to the premium investors require to own the long end of JGBs.”
The 20-year bond yield rose to 3.35 per cent ahead of an auction on Tuesday.
In the face of rising yields, Takaichi has been at pains to signal to voters and financial markets that her plans for more spending and tax cuts will not strain Japan’s public finances.
On Monday, she vowed to lower Japan’s gross debt-to-GDP ratio, which reached as high as 250 per cent last year according to some estimates.
Japan’s finance minister, Satsuki Katayama, is set to speak at the World Economic Forum in Davos on Tuesday and is expected to use the occasion to convince a global audience of Japan’s fiscal position.
Despite their efforts, analysts at Japanese bank SMBC said traders were largely positioned around the “Takaichi trade”, with expectations that the Japanese yen and government bond prices will fall while bank stocks will gain from fiscal stimulus and higher interest rates.
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