Japanese sovereign debt does not escape the increase in yields in the secondary market in 2025. As is the case with US bonds, Japanese securities are soaring due to the expectation of a more restrictive monetary policy by the Federal Reserve. And that forces the Bank of Japan to be more restrictive as well. He 40-year Japanese bond climbs to offer a yield greater than 2.75% never seen before.
Unlike the Federal Reserve or the European Central Bank, in Japan monetary policy is in the full phase of restrictive adjustment. But now investors expect that interest rates in the United States will fall at a slower rate due to the strength shown by the country’s latest macroeconomic data. The arrival of Donald Trump to the White House and its tariff war that will bring inflation to the entire world.
Given this environment, the US dollar gains ground in the foreign exchange market and causes widespread selling in the fixed income market. Longer-term debt, such as 40-year Japanese bonds that are trading at all-time highs (first aired in 2007), suffer in this context. However, shorter maturities also see an increase in yields.
20-year debt is at 2011 highs and ten-year securities are rising since December 18, 2024 (last meeting of the Bank of Japan, in which they decided not to move their interest rates from the current 0.25%) 18 basis points to almost 1.24%. It seems little, in particular, when compared to the 4.8% of the US ten-year bond, but the fact is that the Japanese debt was still trading in negative at the start of last year. “With the rise in long-term US Treasury yields there is room for Japanese bonds to continue rising“commented the strategist of the investment firm Mizuho Securities, Shoki Omori.
The market consensus that reflects Bloomberg is torn between a single 25 basis point rate cut by the US Federal Reserve this year or two (a range of 25 or 50 basis points). On the contrary, it is expected that the Bank of Japan raises its benchmark by 50 basis points. This leaves a smaller differential between the Japanese and American benchmarks for 2025 at the end of the year than was expected three months ago. That is, a base scenario that implies a stronger dollar, which corners the Bank of Japan and forces it to be more restrictive.
The Bank of Japan meets next week. A priori, It is discounted that on January 24 the institution will adjust its rates upwards with an increase of 15 basis points (the adjustments are not usually 25 basis points or their multiples, as the Fed or the ECB do). This Tuesday, the deputy governor of the Bank of Japan, Ryozo Himino, declared before the national press that US economic policy “under a new administration” deserves special attention, in clear reference to the arrival of Donald Trump. Likewise, he announced that the institution is already debating the decision they will make next week regarding the future of Japanese monetary policy.
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