The Bank of Japan launched a spot “morning offer” to lend Japanese government bonds, providing immediate access to recently issued JGBs

The Bank of Japan launched a spot “morning offer” to lend Japanese government bonds, providing immediate access to recently issued JGBs

The Bank of Japan (BoJ) has introduced a new initiative to provide immediate access to recently issued Japanese Government Bonds (JGBs) through a spot "morning offer." This move comes amidst significant volatility in the JGB market, driven by shifts in monetary policy and changes in investor demand.

Shifts in Monetary Policy

The BoJ's recent policy changes have been a key driver of the JGB yield spike. In March 2024, the BoJ ended its ultra-easy monetary policy, including negative interest rates and yield curve control (YCC), and initiated a quantitative tightening (QT) program. This shift has allowed JGB yields to move more freely according to market fundamentals and participant expectations [1].

Impact on JGB Yields

The 30-year JGB yield surged by 100 basis points (bps) from its April 2025 low, reaching a fresh all-time intraday high of 3.2% by May 2025. The 10-year JGB yield also advanced significantly, rising by 53 bps from its April 2025 low to 1.59% by May 2025 [1]. These rapid movements have had ripple effects across global fixed income and currency markets.

Lack of Demand from Life Insurers

Japan's life insurance sector, which holds approximately 13% of total outstanding JGBs, has been a significant contributor to the yield spike. Recent heightened volatility and low liquidity have deterred life insurers from buying more JGBs, increasing upward pressure on yields. Life insurers have trimmed their JGB holdings by 1.35 trillion yen since March 2025, the third-largest reduction on record [1].

Global Market Impact

The spike in the 30-year JGB yield has been accompanied by synchronized upward movements in other long-term sovereign bond yields, including US Treasury bonds and German bonds. The 30-year US Treasury bond yield rose by 81 bps to 5.15% in May 2025, while the 30-year German bond yield rallied by 36 bps to 3.20% over the same period [1]. These increases may make corporate loans and mortgages more expensive, potentially dampening global economic growth prospects.

FX Market Implications

The rising yields in JGBs have narrowed the yield spread discount against other sovereign bonds, potentially leading to an unwinding of carry trade strategies. Japanese investors have been recycling funding proceeds from the ultra-low-interest rate environment into overseas financial markets. If JGB yields continue to rise rapidly, investors may pull money out of US Treasuries and invest in JGBs, affecting currency pairs like USD/JPY and G-10 JPY crosses [1].

Inflation and Future Policy

The BoJ's decision to end ultra-easy monetary policy was driven by the rapid rise in core-core CPI, which has been above the 2% target since January 2024. As inflation trends remain a key focus, investors will continue to monitor the BoJ's policy direction and its impact on JGB yields [1].

Conclusion

The Bank of Japan's spot "morning offer" for JGBs aims to provide immediate access to recently issued bonds, potentially stabilizing the market amidst volatility. Investors should closely monitor the BoJ's policy shifts, life insurers' demand, and global market dynamics to gauge the full impact of these changes.

References

[1] https://www.oanda.com/us-en/trade-tap-blog/analysis/fundamental/record-spike-japan-jgb-yield-causes-market-imp/