Japan Cuts Super-Long Bond Sales by 10% to Stabilize Market Amid Rising Yields

In a significant shift to its fiscal strategy, the Japanese government plans to cut sales of its super-long bonds by approximately 10%, a rare mid-year revision to its bond issuance program. This adjustment is aimed at calming investor concerns after weak demand at recent auctions and a sharp rise in long-term bond yields. The revision, revealed in a draft seen by Reuters, marks a proactive attempt by Japan’s Ministry of Finance to better manage the bond market’s supply-demand balance.

The decision follows the Bank of Japan’s recent move to slow down its reduction of bond purchases, signaling a cautious approach to unwinding the country’s long-standing monetary stimulus. The bond market had been jittery in recent weeks, with 20-, 30-, and 40-year yields hitting record highs, partly driven by global sell-offs in longer-term debt amid tightening fiscal outlooks in advanced economies.

As part of the new strategy, Japan plans to decrease annual super-long bond issuance by 2.3 trillion yen, bringing total JGB issuance down by 500 billion yen to 171.8 trillion yen through March next year. The cut will be offset by increased issuance of shorter-term notes and household-focused principal-guaranteed JGBs. This rebalancing effort is expected to reduce supply-side pressures in the super-long segment without compromising overall funding needs.

However, shifting toward more short-term debt introduces financial risk, as these instruments require frequent refinancing and expose Japan’s fiscal position to bond market volatility. For instance, two-year note sales will rise by 100 billion yen per auction beginning in October, while one-year and six-month discount bills will each increase by 600 billion yen. The household bond program will also see a 500 billion yen boost.

Originally, Japan had anticipated trimming only 30- and 40-year bond sales to reflect lower demand from life insurers adjusting to new solvency rules. But growing global concerns over debt sustainability triggered a broader reassessment. By scaling back longer-tenor issuances and recalibrating toward shorter terms, Tokyo hopes to preserve market confidence and maintain stability in the face of shifting macroeconomic conditions.

Source: CNBC