(Dec 9): Japanese Finance Minister Satsuki Katayama said she is closely watching market trends, as the yield on 10-year government debt hovers near 2%, a level not seen since 2006.
“We are monitoring market trends very closely,” Katayama told reporters on Tuesday when asked about the recent rise in yields. “We will manage government bonds appropriately through close communication with the market,” she said, while refraining from commenting on any specific level.
Katayama’s remarks come as Japan’s benchmark yield hit its highest since 2007 on Monday, driven by mounting concerns about the nation’s fiscal health and expectations that the central bank will continue to raise interest rates.
The backing away from an annual target to balance the budget after debt servicing has also unsettled investors concerned about the nation’s finances.
Prime Minister Sanae Takaichi’s recent extra budget to finance the largest round of fresh spending in an economic package since pandemic rules were eased includes ¥11.7 trillion (US$75 billion or $97 billion) in new bond issuance.
While the extra spending shows Takaichi’s commitment to support the economy to achieve growth, the prime minister also managed to keep total bond issuance for the fiscal year below last year’s level while pushing more issuance to the shorter end of maturities.
Katayama sought to reassure investors by noting that IMF Managing Director Kristalina Georgieva said Japan’s public finances remain sustainable after reviewing the latest economic package.
Expectations of rising interest rates are also feeding into upward movement. BOJ Governor Kazuo Ueda has explicitly said the bank will consider raising interest rates at the central bank’s upcoming meeting, echoing the language he used ahead of the January hike and signalling that action may be close. Traders see over an 80% chance of a rate hike when the BOJ concludes its next policy meeting on Dec 19, according to overnight swaps.
On Monday, Keidanren chair Yoshinobu Tsutsui described the 2% yield level as a key milestone, urging the government to maintain market trust in Japan’s finances. The 10-year yield hasn’t regularly stayed above the 2% level for a prolonged duration since 1997.
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