Japan’s Ministry of Finance (MOF) is weighing cuts to super-long government bond issuance amid soaring yields, as policymakers aim to stabilise concerns over the country’s fiscal sustainability, according to Reuters.
The potential shift, which could see reduced sales of 20-, 30-, or 40-year bonds, follows a spike in long-term borrowing costs driven by dwindling demand from institutional buyers and global anxiety over Japan’s debt burden.
The 30-year Japanese government bond (JGB) yield plummeted 12.5 basis points to 2.91% after the report, while the 10-year yield fell 5 basis points to 1.455%. The yen weakened 0.3% against the dollar to 143.275, and long-dated US Treasury yields mirrored the drop, with 30-year yields sliding 7 basis points to 4.963%.
The MOF plans to finalise adjustments to its fiscal 2025 bond programme by late June, maintaining the total issuance at ¥172.3 trillion ($1.21 trillion) but rebalancing towards shorter-term debt.
While the move alleviated immediate pressure, analysts warn it offers no long-term solution to Japan’s debt trajectory, which allegedly exceeds 260% of GDP, the highest among advanced economies. Katsutoshi Inadome of Sumitomo Mitsui Trust Asset Management cautioned that such offers “only temporary relief and won’t lead to a decline in Japan’s debt balance.”
Politicians now need to avoid increasing debt.
The decision coincides with political pressure on Prime Minister Shigeru Ishiba to pursue tax cuts and stimulus ahead of July’s upper house elections. Meanwhile, the Bank of Japan (BOJ) is expected to maintain its bond-tapering schedule but may revise plans for fiscal 2026 amid market turbulence.
Japan’s debt burden, exacerbated by decades of low growth and an aging population, has forced policymakers to adopt unconventional strategies, including heavy central bank purchases of JGBs. The BOJ currently holds over 43% of government debt, insulating yields from global volatility but raising questions about fiscal sustainability.
Despite the challenges, Japan’s consolidated public sector balance sheet—which accounts for assets like equities and foreign securities—shows a net liability of 78% of GDP, far lower than headline debt figures suggest. This “financial repression” strategy, borrowing cheaply to invest in high-return assets, has so far averted crisis but leaves little room for error, analysts warn.
As markets digest the MOF’s potential pivot, attention now turns to Wednesday’s 40-year JGB auction and whether Tokyo can balance short-term stability with long-term fiscal discipline.
