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2025-07-29 15:10:03
[Japanese Bond Market Faces a Triple Storm: Political, Central Bank, and Federal Reserve Risks Intertwined] 1. The Japanese bond market is facing a triple squeeze of political turmoil, a shift in central bank policy, and uncertainty surrounding the Federal Reserve. Following the ruling coalition's defeat in the Senate election, long-term government bond yields remain near record highs, and the growing opposition is putting pressure on Prime Minister Shigeru Ishiba to step down. Market expectations are that his resignation could occur as early as this week, and the policy preferences of potential successor Sanae Takaichi are causing caution among bond investors. 2. On the policy front, the US-Japan trade agreement has created conditions for the Bank of Japan to resume interest rate hikes, pushing short-term government bond yields to multi-month highs. While no immediate policy change is expected at Thursday's meeting, expectations for an October rate hike are growing. A normalization of central bank policy will push up lending rates and reduce bond purchases, forcing the Ministry of Finance to seek new buyers. 3. Meanwhile, the Federal Reserve's interest rate decision on Wednesday presents additional risks. While interest rates are expected to remain unchanged, internal policy disagreements and threats from the Trump administration to interfere with the Fed's independence could trigger volatility in US Treasury yields, impacting global bond markets. As one of the world's major bond markets, Japan is at the center of the storm of these three risk factors.
