Japan 40Y government bond auction may have 3.35% highest yield: poll

Japan 40Y government bond auction may have 3.35% highest yield: poll

The upcoming 40-year Japanese government bond auction, scheduled for Wednesday, July 22, is set to be a critical test of investor appetite for long-term debt. This auction comes amidst heightened fiscal concerns following the recent election defeat for Prime Minister Shigeru Ishiba [1].

Investors remain cautious about Japan’s fiscal trajectory, with widening asset swap spreads indicating worries over potential higher government spending. Naoya Hasegawa, chief bond strategist at Okasan Securities Co., expects subdued demand at the auction, attributing it to uncertainty about future fiscal policy [1].

Recent increases in bond yields, reaching multi-year highs, have been driven by concerns over government spending and the Bank of Japan’s gradual reduction in bond purchases. However, the Ministry of Finance’s decision to reduce the issuance of longer-maturity bonds may help mitigate concerns and ensure a smoother auction [1].

Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management Co., expects the auction to pass through safely but cautions that sustained bond buying may not be sustainable due to ongoing fiscal policy uncertainties [1]. The unpredictable outcomes of US-Japan trade negotiations and the Bank of Japan’s policy path will also influence market sentiment [1].

Adding to the market’s uneasiness, Japan Post Insurance Co., one of the nation’s largest life insurers, has stated that super-long-term yields are nearing their peak. The company plans to shift its holdings from foreign to yen bonds in anticipation of a US interest rate cut by the Federal Reserve [2]. This strategic move by Japan Post Insurance Co. reflects a broader market sentiment that the US Federal Reserve will cut interest rates twice in the current fiscal year [2].

Traders are now focused on the 40-year bond auction, which could see the highest yield at 3.35%, according to a recent poll. The upcoming auction will provide crucial insights into investor confidence and the direction of Japan’s fiscal policy [1].

References:
[1] https://www.bloomberg.com/news/articles/2025-07-22/japan-faces-40-year-debt-sale-as-fiscal-fears-linger-after-vote
[2] https://www.bloomberg.com/news/articles/2025-07-23/japan-post-insurance-says-super-long-term-yields-near-peak