Japanese Investors Are Being Cautious in Bond Auctions.

Remarkable Developments in Japan's Bond Market

In Japan's 20-year government bond sale, investors were cautious ahead of Prime Minister Sanae Takaichi's first economic package. The bid coverage ratio in the auction was 3.28 this month, down from 3.56 last month. This ratio remained at similar levels to the 12-month average of 3.3.

Market Interest and Stimulus Expectations

The market is closely monitoring today’s auction along with the 40-year bond sale scheduled for next week. Prime Minister Takaichi is preparing to announce a stimulus plan in which she forecasts an increase in bond issuances. However, rising pressure in the bond market exists due to fiscal concerns.

Supplementary Budget Request and Economic Indicators

Some lawmakers from the ruling Liberal Democratic Party have urged Takaichi to prepare a supplementary budget worth 25 trillion yen (approximately 161 billion dollars). Japan's gross domestic product data released this week supports Takaichi's requests for the stimulus package.

Expert Opinions and Market Analysis

Ryutaro Kimura, senior fixed income strategist at AXA Investment Managers Ltd., noted that "the 20-year bond auction went weak," emphasizing that bond investors should be prepared for rising yields ahead of next week's 40-year bond auction.

Keiko Onogi, senior bond strategist at Daiwa Securities Co., stated, "There were reluctant bids in the current situation, but this may not lead to further sales." Meanwhile, Goldman Sachs Group Inc. pointed out that due to investors' cautious behavior stemming from expectations of a larger-than-expected stimulus package, the fiscal risk premium in Japan's bond market is likely to return, which would exert pressure on long-term government debt and the yen.