Long-term yields rose to the 3% range during the first year of the Takaichi administration. The view has emerged that concerns over aggressive fiscal policy and expectations that the BOJ will maintain monetary easing expanded the term premium.
Since the Takaichi administration began last October, the 10-year JGB yield has risen from 1.67% last year to 3.105% this October. It has recently been trading at around 2.90%, bringing the increase during the administration’s first year to 153 bp.
US and German government bond yields have also risen, but Japan’s increase has been substantially larger. Yields had risen by approximately 70 bp in the year before last October, leading to the view that Japan’s increase in yields stands out.
In the market, concerns over the aggressive fiscal component of the Takaichi administration’s “responsible proactive fiscal policy” are seen as a factor behind the rise in long-term yields. At the same time, expected real short-term interest rates have declined, and some observers believe that expectations of limited BOJ rate hikes point to the need for substantial rate hikes in the future.
While a combination of fiscal expansion, reflecting “Sanaenomics,” and monetary easing aims to support growth, it has been noted that the stance of restraining rate hikes could create market instability. Long-term yield movements are expected to remain a focus.