The Japanese government bond (JGB) market saw minimal movement on Tuesday, with traders adopting a cautious stance ahead of two major economic events. Activity was subdued as participants awaited the release of pivotal US employment data and the Bank of Japan's (BOJ) upcoming monetary policy decision later in the week.
Market Awaits Crucial Data from US and BOJ
As of 0405 GMT, the yield on the benchmark 10-year JGB was unchanged at 1.955%. Correspondingly, 10-year JGB futures also showed little movement, trading at 133.40 yen. It's important to note that bond yields move inversely to their prices. The market's focus was split between the delayed US jobs report and the BOJ's meeting.
The US Bureau of Labor Statistics was set to release its combined employment reports for October and November later on Tuesday. This data was highly anticipated after delays caused by the longest government shutdown in US history. Meanwhile, in Japan, traders are almost universally expecting the Bank of Japan to raise interest rates by a quarter point on Friday. Consequently, most attention is directed towards Governor Kazuo Ueda's post-meeting news conference, where investors will seek clues about the policy path into 2026.
Super-Long Yields Dip Slightly from Record Highs
Trading in shorter-dated bonds was particularly quiet. The two-year JGBs, which are highly sensitive to monetary policy expectations, had not traded by Tuesday. Similarly, five-year notes also saw no change in hands. In the super-long end of the curve, there was a slight easing. The 20-year yield edged 1 basis point lower to 2.915%, while the 30-year yield also dipped 1 basis point to 3.355%.
These yields had reached record peaks earlier in December at 2.935% and 3.445%, respectively. The surge was primarily driven by investor anxiety over Japan's fiscal health after the new government approved the largest spending package since the pandemic era.
Are Fiscal Concerns Overblown?
However, economists at Morgan Stanley MUFG Securities argue that these worries may be exaggerated. In a client note, analysts Takeshi Yamaguchi and Masayuki Inui addressed growing investor inquiries about Japan's fiscal sustainability. They pointed out that while large supplementary budgets have become common, the allocated amounts are not always fully spent.
The economists provided a key insight: "Despite a seemingly large headline size, the planned issuance of new government bonds for fiscal year 2025 after the supplementary budget is actually lower than the prior year." Based on this analysis, they concluded that "undue worry is unnecessary" regarding Japan's immediate fiscal trajectory, suggesting the market reaction might have been overdone.
