'July Election' in Japan: 30-Year Bond Yield Hits Record High on Deficit Bond Issuance Speculation

In the Japanese government bond market, yields on 30-year and 40-year bonds soared to record highs, continuing the downward trend in bond prices.

According to the Nikkei on May 21, yields on 30-year government bonds rose to as high as 3.185%, while 40-year bond yields climbed to 3.635%. The yield on 20-year bonds also increased to 2.575%, the highest level since October 2000.

Shigeru Ishiba Japanese Prime Minister Yonhap News

The Nikkei analyzed that the weakness in long-term government bonds was driven by active discussions within political circles about a possible consumption tax cut ahead of the House of Councillors (Upper House) election, which is expected to take place around July 20.

The main opposition Constitutional Democratic Party and the coalition partner Komeito are both calling for a consumption tax cut as a measure against high inflation. There is growing speculation that if an actual tax cut is implemented, the resulting shortfall in social security funding will be covered by issuing deficit-financing government bonds.

On this day, Prime Minister Shigeru Ishiba reiterated his opposition to a tax cut during a party leaders' debate with opposition leaders, stating, "If we do not present a package that includes how to compensate for the tax cut and how to handle social security, it will amount to nothing more than an election ploy." At the House of Councillors Budget Committee meeting on May 19, he also emphasized, "Japan's fiscal situation is very poor," and added, "It is worse than Greece."

The Asahi Shimbun, citing data from the International Monetary Fund (IMF), explained that Japan's debt-to-GDP ratio in 2023 was 250%, far higher than Greece's 127% when it faced a fiscal crisis in 2009.

Meanwhile, the Nikkei reported that the Japanese government plans to revise its target for achieving a primary surplus in the national and local government fiscal balances, moving it from the original target of the 2025 fiscal year (April 2025 to March 2026) to the 2025-2026 period.

The primary fiscal balance is an indicator of whether policy expenditures for social security, public works, and other areas can be financed without issuing new debt. If this balance is in deficit, the amount of debt that needs to be repaid increases. The Japanese government decided to revise its plan, taking into account the increased global economic uncertainty caused by the Donald Trump administration's tariff policies. Japan's primary fiscal balance has remained in deficit since 1992.

This content was produced with the assistance of AI translation services.