Japan 30-year yields ease before auction as election risk lingers

Japan’s 30-year bond yields eased ahead of an auction, but fiscal uncertainty linked to Sunday’s snap election continues to cap any sustained rally.

Summary:

• Japan’s 30-year JGB yield edged lower ahead of Thursday’s auction

• Super-long bonds remain sensitive to fiscal election risk

• Snap election keeps focus on potential tax cuts and stimulus

• Elevated yields may improve auction demand despite uncertainty

• Market calm returns after January’s sharp bond rout

Japan’s super-long government bonds steadied on Thursday, with 30-year yields easing slightly ahead of a key auction later in the session, even as political uncertainty remains elevated ahead of Sunday’s snap election.

The 30-year JGB yield fell 1.5 basis points to around 3.62%, remaining within a relatively narrow trading range seen over the past two weeks. The move comes after sharp volatility in mid-January, when yields surged to record highs following election-related fiscal concerns.

That sell-off was triggered after Prime Minister Sanae Takaichi called a snap election while pledging to waive Japan’s sales tax on food for two years — a proposal that reignited fears of looser fiscal discipline. At the peak of the rout on January 19–20, the 30-year yield touched an all-time high of 3.88%.

Super-long JGBs have been particularly sensitive to perceived fiscal slippage, reflecting investor caution toward expanded stimulus in a country that already carries the highest public debt burden in the developed world. Takaichi, a long-time advocate of policies associated with former prime minister Shinzo Abe’s Abenomics framework, has kept those concerns firmly in play.

Polling suggests Takaichi’s Liberal Democratic Party could secure as many as 300 seats in the 465-member lower house, a result that would give the government a strong mandate but leave bond investors waiting for clarity on fiscal details.

Analysts at Mizuho Securities said uncertainty around fiscal policy is likely to persist well beyond the election, limiting the scope for a sharp rally in long-dated bonds in the near term. However, they noted that the significantly higher yield levels compared with the previous 30-year auction earlier this month should help attract buyers.

Elsewhere on the curve, moves were modest. The 20-year yield was unchanged, while 10-year, five-year and two-year yields all edged slightly lower, signalling a degree of stabilisation after January’s turbulence.

Polls are showing a solid win for Takaichi this weekend. Election February 8.