Japan's 10-Year Bond Yield Hits 27-Year High Amid Ruling and Opposition Parties' Tax Cut Talks Ahead of General Election

10-year Yield Surges to 2.256% During Trading
Yields on 20- and 30-year Bonds Also Climb
Debate Over "Consumption Tax Cuts" Ahead of Early Election
Tax Revenue Could Drop by 5 Trillion Yen Annually if Cuts Are Implemented
Market Reacts to Fisc

Yonhap News Agency

The yield on Japan's 10-year government bonds has surged to its highest level in approximately 27 years. This appears to reflect market concerns over fiscal deterioration, as both the ruling and opposition parties are considering measures such as food tax cuts ahead of an early general election.

According to Investing.com, as of 1:30 p.m. on January 19, the yield on Japan's 10-year government bonds had jumped by 0.069 percentage points from the previous day to reach 2.253%. This marks the highest level since February 1999, nearly 27 years ago.

Yields on ultra-long-term bonds are also rising across the board. The 30-year bond yield rose by 0.096 percentage points to 3.586%, while the 20-year bond yield climbed by 0.088 percentage points to 3.246%.

Analysts attribute the rise in long-term Japanese government bond yields largely to the impact of the early general election. Both the ruling and opposition parties have begun preparing for the election and are considering temporary measures such as exempting food products from the consumption tax.

Fumitake Fujita, co-leader of the Japan Innovation Party, part of the ruling coalition, told reporters the previous day, "Households are being severely affected by high prices," adding, "I strongly want to push for a zero consumption tax on food for a limited period of two years."

The Mainichi Shimbun reported that if the consumption tax on food is temporarily lifted, annual tax revenue would decrease by about 5 trillion yen (approximately 4.6677 trillion won).

It is interpreted that Japanese government bond yields have risen on expectations that, if the ruling Liberal Democratic Party wins the early general election, Prime Minister Sanae Takaichi's policy of "responsible active fiscal management" will continue.

Under tax cut policies, the Japanese government would likely need to issue additional government bonds to finance active fiscal spending. At the same time, the Bank of Japan is expected to raise its benchmark interest rate, leading to higher government bond yields (and falling bond prices).

However, some analysts caution that if a food consumption tax cut is implemented, it could have a significant impact on the foreign exchange and bond markets, and that policymakers are likely to make a careful decision.