While Ishiba hanging on as leader for now provides a measure of continuity for markets, he will also need to find ways to placate opposition lawmakers seeking tax cuts and households wanting relief from inflation. Any concessions to these pressures can be expected to quickly translate into higher bond yields.
With Japan’s markets closed for a national holiday on Monday, investors expressing an initial view on the election did so largely through the yen, which advanced about 1% against the dollar after weakening for most of July. The currency weakened about 0.1% to trade around 147.54 as of 9:27 a.m. in Tokyo.“Concerns over fiscal expansion continue to simmer in the market, and in light of the election results, JGBs could come under selling pressure,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management. “I anticipate a bearish steepening of the yield curve, driven especially by super-long bonds.”
Benchmark 10-year bond yields rose to 1.535%, while the 5-year bond yields rose a basis point to 1.05%.
Yields on longer-maturity JGBs of 20 to 40 years dipped slightly on Friday but have been in an acute uptrend over recent months. The moves in Japanese yields, which have flowed through into global markets, reflect concerns among investors that the government is spending beyond its means.
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