Yuichiro Tamaki, leader of a major opposition party, told Reuters on Wednesday that Japan must respond firmly to excessive market fluctuations, following a sharp selloff in government bonds that unsettled global financial markets.
Tamaki, head of the Democratic Party for the People (DPP), said policymakers could correct the “abnormal” moves in assets through actions including buying back government bonds or reducing issuance of super-long notes.
The DPP is a smaller party than a newly formed opposition coalition, but it still commands a significant presence in parliament and holds a casting vote in key legislation and the ruling coalition’s economic policies.
Investors were desperately trying to come to grips with a meltdown in JGBs, with the yield on the benchmark 10-year paper JP10YTN=JBTC having spiked 8.5 basis points in just two days, the sharpest rise since Japan loosened a cap on the benchmark bond yield in 2022.
The rout was sparked by comments from Prime Minister Sanae Takaichi, who on Monday announced a plan to call a snap general election for February 8 with a pledge to suspend by two years an 8% levy on food sales and reverse what she described as “excessively tight fiscal policy.”
Investors fear Japan could ramp up debt issuance to meet Takaichi’s expansionary fiscal agenda and worsen its already tattered finances.
FX Market Intervention Should Be Part Of Playbook
Tamaki said the government can consider buying back bonds or reducing issuance of 40-year JGBs, on top of sending a strong message to markets.
The Bank of Japan, for its part, can taper its bond-buying at a slower pace than currently scheduled, he added.
The market concern over Japan’s finances has also rippled through to the yen, while investors fret the BOJ’s slow pace of interest rate hikes may be fuelling the risk of too-high inflation.
Since Takaichi became prime minister in October, her dovish fiscal and monetary credentials have tanked the yen by about 8% against the dollar to briefly hit an 18-month low of 159.45 JPY= last week – its lowest level since Japan last intervened in July 2024.
The BOJ ended a decade-long, massive stimulus and began tapering its huge bond buying in 2024, followed by several sequences of hikes in its short-term policy rate including one to 0.75% from 0.5% last month.
Analysts polled by Reuters expect the BOJ to wait until July before raising rates again, with more than 75% of them expecting it to climb to 1% or higher by September.
(With input from Reuters)
