Japanese bonds may rebound after Katayama calls for market calm

JAPAN’S bonds are likely to rebound after Finance Minister Satsuki Katayama called for calm among market participants following a selloff that pushed yields to all-time highs.

Katayama’s comments came after Prime Minister Sanae Takaichi’s election pitch to cut taxes on food drove up yields on 30- and 40-year debt by more than 25 basis points on Tuesday.

The moves rippled across global markets, with US Treasury Secretary Scott Bessent saying he had spoken with his Japanese counterpart and that the moves had impacted the Treasury market.

With a snap election in Japan coming on Feb 8, investors are worried there will be more volatility ahead. Any deepening of the rout may spur the Bank of Japan to step into the market with its unlimited bond buying tool, some analysts warned. 

“Katayama’s comments will have some impact on the market, but these are not the type of moves that can be stopped with just verbal intervention,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management. “Bonds will likely be bought today, but the upside momentum is likely to gradually fade.”

Japanese stocks are set to extend their slide amid President Donald Trump’s latest push to take over Greenland and concerns over fiscal expansion in Japan.

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The yen is hovering around the 158 level, with investors worried about further weakness if the BOJ intervenes in the bond market.

“Many market participants expect the BOJ to make extraordinary purchases of government bonds, but this will depend on whether the government tolerates the resulting yen depreciation,” said Ryutaro Kimura, a senior fixed-income strategist at AXA Investment Managers Ltd. 

“If the BOJ were to intervene aggressively in the market to push down interest rates, the dollar-yen exchange rate would likely at least break through the government’s defense line of 160 yen to the dollar,” Kimura said, referring to a key psychological level for the Japanese currency. BLOOMBERG