Japan Plans to Cut Super-Long Bond Issuance to Ease Market Concerns
Japan’s Ministry of Finance (MOF) is considering reducing the issuance of super-long Japanese Government Bonds (JGBs) amid rising yields and market jitters over the country’s growing debt, according to sources familiar with the plan. The decision, expected by mid to late June, aims to address imbalances in demand, particularly as traditional buyers like life insurers pull back. Despite this adjustment, the total size of debt issuance for the fiscal year ending March 2026 will remain unchanged at 172.3 trillion yen ($1.21 trillion).
Following the news, yields on super-long bonds dropped sharply, which in turn eased pressure on the Japanese yen and lowered long-term U.S. Treasury yields. The 30-year JGB yield fell to its lowest level since mid-May, signaling relief among investors concerned about soaring borrowing costs. Analysts welcomed the MOF’s prospective move as a necessary step to stabilize bond markets, though they cautioned it would offer only temporary respite.
The backdrop to these developments includes political pressures in Japan, with Prime Minister Shigeru Ishiba facing demands for tax cuts and increased spending ahead of an upcoming upper house election. These fiscal policies risk further inflating Japan’s already massive public debt. The government is reportedly considering another spending package but aims to avoid financing it through additional deficit bonds.
Market focus is also shifting toward the Bank of Japan (BOJ), which controls monetary policy and bond purchases. Sources indicated the BOJ is unlikely to significantly alter its bond tapering plan for the current fiscal year, but ongoing market volatility might influence policy decisions starting fiscal 2026. The BOJ’s approach will be critical in managing future yield movements and investor confidence.
Experts warn that while trimming super-long bond issuance may temporarily calm market nerves, it does not reduce the overall debt burden. They emphasize that political leaders must act responsibly to prevent further debt accumulation and stabilize Japan’s fiscal outlook over the long term.
Source: Reuters