The Japanese government is considering a strategic move that would involve repurchasing some of its super-long-term government bonds. According to two sources familiar with the matter, this potential policy move is in response to growing concerns, particularly regarding the rapid and unstable yield increases on long-term bonds.
Rising Bond Yields Trigger Policy Consideration
Super-long Japanese Government Bonds (JGBs) with maturities of 20, 30, and 40 years have risen rapidly in recent weeks.
This increase is attributed primarily to a decline in demand from traditional institutional investors, such as life insurance companies, and global market concerns about Japan’s rising public debt. Last month, the yield on 30-year JGB reached 3.185%, its highest level in recent years. This has heightened concerns about stability in financial markets. The government’s possible solution is to reduce bond supply and balance the excess supply in the market with targeted buybacks.Political Pressure and Debt Concerns
The pressure on bond yields stems not only from market dynamics but also from political developments. Prime Minister Shigeru Ishiba is facing pressure from within his party to implement tax cuts and increase public spending ahead of the crucial upper house elections in July. While these steps are politically appealing, they are worrying for the markets because Japan already has one of the highest debt burdens among developed countries.
These signals of fiscal expansion cause bond yields to rise, and Japan’s Ministry of Finance (MoF) has begun exploring various options to offset the negative market reaction. The possibility of a buyback eased the market anxiety on Monday; The 30-year bond yield gave back some of its previous increase, closing the session up just 1.5 basis points at 2.89% (intraday high was +4.5 bp).
Super Long-Term Bonds: A Key Part of the Borrowing Strategy
Of the 172.3 trillion yen (approximately $1.2 trillion) worth of JGBs planned to be issued during the current fiscal year ending in March, more than 24 trillion yen is allocated to super long-term bonds. Although these bonds are critical to financing the government’s long-term obligations, there are currently concerns about the market’s absorption capacity. To address this issue, the Ministry of Finance will hold consultation meetings with market participants on June 20 and 23. Whether or not the repurchase plan will be implemented will become clear after these meetings. However, sources indicated that such buybacks are subject to official budget approval and implementation may be delayed. Expert Opinions: A Step in the Right Direction Market analysts welcomed this potential intervention positively. Nomura Securities’ Chief Interest Rate Strategist Mari Iwashita stated that the buybacks would complement expectations of reducing new bond issuance, saying, “Simply cutting new bond issuance may not be enough. Buying back old bonds could significantly alleviate excess supply pressure.”
Bank of Japan Also Under Scrutiny
The recent volatility in the bond market has also drawn renewed attention to the Bank of Japan’s (BOJ) yield curve control policy. The BOJ is trying to maintain this balance while gradually reducing its bond purchases.According to insider information, the BOJ plans to continue its current reduction plan until March 2026; however, it may slow the pace of this reduction in the next fiscal year depending on market conditions.
The final decision will be announced at the BOJ monetary policy meeting on June 16–17. BOJ Governor Kazuo Ueda warned that sharp movements in super-long-term bond yields could spill over into short-term interest rates and worsen borrowing conditions for households and businesses. Global Context: Not Unique to Japan The rise in long-term bond yields is not unique to Japan. Similar trends are seen in the US. Moody’s credit rating downgrade, budget pressures created by former President Donald Trump’s tax reforms, and sustainability concerns have led investors to demand higher yields on long-term debt. This is pushing bond yields up globally.
