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4w ago

Bank of Japan Faces Pressure to Adjust Tapering as Super-Long Bond Yields Hit Record Highs

A poor 20-year bond auction and rising fiscal uncertainty prompt calls for the BOJ to reconsider its bond-buying strategy ahead of its June policy meeting.

Japanese national flag hoisted atop of the Bank of Japan headquarters is seen through trees in Tokyo, Japan January 23, 2025. REUTERS/Issei Kato/ File Photo
A man walks past an electronic screen displaying stock quotation board in Tokyo, Japan April 15, 2025. REUTERS/Issei Kato/ File Photo
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Overview

  • Yields on Japan's 20-, 30-, and 40-year government bonds surged to record highs, with the 20-year yield reaching its highest level since October 2000.
  • A weak 20-year bond auction on May 20 marked the worst result since 2012, highlighting declining investor demand for long-term bonds.
  • Market participants have urged the BOJ to either increase purchases of super-long bonds or pause tapering to stabilize market liquidity.
  • The BOJ, which still owns roughly half of all Japanese government bonds, will review its quantitative tightening strategy at its June 16–17 policy meeting.
  • Political debates over potential consumption tax cuts and new fiscal stimulus ahead of July's upper house election are fueling concerns about Japan's fiscal sustainability and future debt issuance.