Japanese government bond (JGB) investors are on edge ahead of this weekend's upper house elections, fearing a political shake-up that could accelerate fiscal spending and drive super-long bond yields higher.
Reuters with the piece, in brief:
Prime Minister Shigeru Ishiba's declining approval ratings have cast doubt on his coalition's ability to retain a majority.
A defeat could usher in more stimulus-focused policies, even if Ishiba remains in power.
Opposition parties are campaigning on tax cuts to ease inflation's burden—fueling investor concerns over fiscal discipline.
Yields on Japan's 30-year bonds surged 13 basis points on Monday to 3.17%, approaching May's record highs. Barclays estimates current yields already reflect expectations of a three-point cut to Japan's 10% consumption tax.
"If the opposition parties win, the government deficit will see a huge expansion," said Toshinobu Chiba of Simplex Asset Management. "The JGB yield curve will steepen by a lot."
With Japan's debt at roughly 250% of GDP, bond market pressure is mounting. The Ministry of Finance has moved to cut issuance of 20-, 30-, and 40-year bonds, but demand from life insurers remains weak. Analysts warn that even a modestly expansionary outcome could spark further volatility, particularly if the Bank of Japan holds back on rate hikes.
---
The political background to this:
Japan will hold upper house by-elections this weekend, with the results seen as a key test for Prime Minister Shigeru Ishiba's leadership.
Election marks a crucial test for Ishiba's minority government too, which aims to retain a simple majority alongside its Komeito coalition partner amid sliding approval ratings, growing public concern over the rising cost of living, and broader economic concerns.
While the ruling coalition is not at risk of losing overall power, a poor showing could weaken Ishiba's position and embolden opposition parties, many of which are campaigning on tax cuts and expanded fiscal stimulus.
The outcome could influence the direction of economic policy, including budget negotiations and the balance of power in the Diet, with potential market implications if more populist or spending-heavy policies gain traction.
---
Japan is holding a House of Councillors (upper house) election on July 20, 2025
125 of the 248 seats (124 regular seats plus one Tokyo by‑election) are up for grabs
members serve six‑year terms, with half the chamber elected every three years
This article was written by Eamonn Sheridan at www.forexlive.com.
