On Tuesday, the JGB Liquidity Index, which shows how much JGB yields differ from levels that would be anticipated with plenty of liquidity, reached a record high. Since early last year, when JGB market volatility started to rise due to growing fiscal concerns, the measure has been gradually increasing.
A spike in long-term yields following Prime Minister Sanae Takaichi’s election commitment to reduce food taxes exposed that vulnerability. Japan’s 30- and 40-year bond rates reached new highs after rising by more than 25 basis points.
US Treasury Secretary Scott Bessent said he had spoken with Finance Minister Satsuki Katayama and admitted that the actions were impacting the Treasury market, while Katayama urged market players to calm down.
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According to data from the Japan Securities Dealers Association, Japanese insurers sold a record number of the country’s super-long bonds last month. The worry now is not just that yields are high, but that as they increase, there might not be any remaining natural buyers to withstand pressure to sell.
In the meantime, risk is changing in Japan’s bond market. According to JSDA data, foreign investors now make up over 65% of monthly cash JGB transactions, up from 12% in 2009.
Investors with considerably shorter holding periods are increasingly driving a category that was formerly dominated by domestic life insurance and pension funds.
(Edited by : Juviraj Anchil)
