Japan Looks to Cut Issuance of Superlong Government Bonds
TOKYO—Japan's Ministry of Finance plans to reduce its issuance of superlong Japanese government bonds, after a rapid rise in long-end yields alarmed markets.
At a meeting with primary JGB dealers Friday, the finance ministry sought feedback on its plan to cut supply of 20-year bonds by 200 billion yen, equivalent to $1.37 billion, per sale and 30- and 40-year notes by 100 billion yen each at every auction through March 2026. The reductions would start in July.
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To balance the issuance amounts, the ministry also plans to increase issuance of two-year and other shorter-dated debt, it said.
The MOF's issuance plan for superlong bonds has been in the spotlight since yields hit multiyear highs recently, reflecting a lack of investor demand and concerns about the cost of repaying the government's enormous debt. Fiscal sustainability has been a longstanding challenge for Japan, which has government debt double the size of its economy.
In May, the yield on 40-year JGBs rose to 3.675%, the highest since 2007 when the ministry started issuing the ultralong note. The 30-year yield has also hit a record of 3.185%.
Finance Minister Katsunobu Kato has cautioned that rising yields could increase interest payments and ramp up fiscal pressure, while noting that there have been no problems selling JGBs to investors.
The government will maintain close communication with market participants and make efforts to ensure credibility in its fiscal health, Kato has said.
The reduction of supply in the superlong zone will likely ease the threat of a yield spike, but economists say Japan will keep facing fiscal risks in the medium to long run, especially amid domestic political uncertainty.
Although Prime Minister Shigeru Ishiba's fiscal policy stance may not change significantly either before or after the coming Upper House election, his minority government is under pressure from opposition lawmakers.
'As the main opposition parties are advocating for a consumption tax reduction, potential risks remain,' Mizuho Securities economists said in a note.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
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