The supply comes just ahead of Prime Minister Sanae Takaichi’s first economic package, with traders focused on the size of spending and its impact on debt issuance. The 20-year bond yield on Wednesday hit 2.815%, a fresh 1999 high. It traded at 2.81% after the auction results came out.
A group of lawmakers in the ruling Liberal Democratic Party has urged Takaichi to craft a larger-than-expected extra budget worth about ¥25 trillion ($161 billion) to fund the spending that was a key part of her electoral campaign. Japanese gross domestic product data out this week also supported Takaichi’s case for an ambitious stimulus package.
The new premier is confronting a multitude of tests from the market after only about a month in office. The yen’s weakness has prompted debate over a possible intervention, while she has triggered tensions with China due to remarks about Taiwan.
Goldman Sachs Group Inc. said Japan’s bond market will see a return of a fiscal risk premium as investors grow wary of a larger-than-expected stimulus package, putting pressure on longer-maturity sovereign bonds and the yen. Investors will also be cautious heading into the 40-year debt sale next week.
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