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[Alpha Biz= Paul Lee] Japan’s 10-year government bond yield — a key benchmark for long-term interest rates — surged to its highest level in nearly 17 years on July 15, reflecting growing political uncertainty and renewed inflation concerns.



According to Nikkei, the 10-year JGB yield rose as high as 1.595%, up 0.02 percentage points from the previous day, marking its highest intraday level since October 2008.



Takashi Fujiwara, Chief Fund Manager at Resona Asset Management, attributed the spike to the upcoming House of Councillors (upper house) election on July 20. He warned that the ruling coalition of the Liberal Democratic Party (LDP) and Komeito might fail to secure a majority, fueling market jitters.



“With opposition party support rising, there’s now a realistic chance of a consumption tax cut,” Fujiwara said. “If fiscal spending increases under full employment conditions, it could push up inflation expectations, particularly impacting ultra-long-term bond yields.”



He added that political uncertainty is limiting any downside for yields. A poor election result could weaken Prime Minister Shigeru Ishiba’s leadership and lead to an early LDP leadership contest, extending the period of policy instability.



Kazuhiko Sano, Chief Bond Strategist at Tokai Tokyo Securities, pointed to rising expectations for a Bank of Japan (BOJ) rate hike later this year as another major factor behind the yield spike.



Interest rate swap markets now reflect a 50–60% probability of a rate hike before year-end. Sano noted that the BOJ is likely to revise its inflation outlook upward in its July outlook report, reinforcing the case for a September rate hike.



The market is watching closely for BOJ signals, as persistent inflation and political volatility reshape expectations for Japan’s monetary policy path.

 

 

 

 

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