Overview

• Opinion polls show the ruling Liberal Democratic Party may lose its upper-house majority on July 20, empowering smaller parties that favor tax cuts and easier monetary policy.
• Investors have dumped super-long JGBs in anticipation of larger deficits and political uncertainty, driving yields to record highs.
• Opposition groups including Sanseito, the Japan Innovation Party and the Democratic Party for the People are pressing the BOJ to slow rate hikes and cut the 10% consumption tax.
• Heightened political pressure could delay or reverse the BOJ’s gradual exit from near-zero rates, complicating its effort to normalize policy three years after inflation consistently exceeded 2%.
• With public debt at roughly 250% of GDP, any shift toward additional fiscal stimulus raises concerns about financing costs and market confidence.