Japan Bonds Draw Weak Demand as Rise in Superlong Yields Sparks Concern — Update
By Megumi Fujikawa
TOKYO--An auction of 40-year Japanese government bonds drew the weakest demand in nearly a year, signaling investor caution amid a global rise in yields of ultralong bonds.
The auction results accelerated an afternoon climb in superlong JGB yields on Wednesday, part of a broader trend that reflects concern over fiscal deficits in major economies, including the U.S. and Japan.
Though bond yield moves have sparked worries, analysts say the upswing in Japanese yields is likely temporary and manageable.
Japan's Ministry of Finance sold about 500 billion yen of 40-year bonds at a yield of 3.135%, equivalent to $3.46 billion.
The bid-to-cover ratio--a key measure of demand--fell to 2.21 at Wednesday's sale from 2.92 in March, marking the lowest level since July 2024. A lower ratio indicates softer demand.
Following the auction, yields on 30-year JGBs briefly jumped 11 basis points to 2.940% in an unusually sharp move before easing back to 2.900%. The 20-year JGB yield rose as high as 2.425%, while the 40-year yield reached 3.385%.
The rise in ultralong JGB yields reflects a lack of domestic investor appetite for longer durations and mirrors similar movements in U.S. Treasury yields. Higher tariffs have fueled fears of an economic slowdown and speculation about looser fiscal policy.
Still, the selloff in JGBs isn't as alarming as it might seem, said Thomas Mathews, head of Asia-Pacific markets at Capital Economics.
"Japanese authorities have tools to handle this," he said in a note. "The MOF could adjust the profile of issuance further. The BOJ [Bank of Japan] may also choose to reinvest more of its maturing bonds in this part of the curve, if needed, to calm markets."
Earlier in the day, BOJ Gov. Kazuo Ueda pledged to closely monitor moves in the superlong debt sector.
"We will carefully watch market movements and their economic impact, while keeping in mind the possibility that significant fluctuations in superlong yields could affect long-term, or short- and medium-term interest rates," Ueda said during a parliamentary committee session.
However, he noted that central bank research has shown that short- and medium-term interest rates have a bigger impact on the economy than superlong yields, as they align with the duration of borrowings made by companies and households.
Takahide Kiuchi, a former BOJ policy board member and economist at Nomura Research Institute, said the recent climb of superlong yields could prompt the central bank to take a more cautious approach to further tightening.
"Additional rate hikes, or expectation for them, could further push up superlong-term bond yields and potentially destabilize financial markets," Kiuchi said.
The Japanese central bank has been gradually raising its policy rate since last year, sparking concerns about a rise in the cost of repaying the government's enormous debt.
Finance Minister Katsunobu Kato said Wednesday that long-term economic growth is crucial to maintaining fiscal sustainability.
"It's essential to firmly address fiscal matters, recognizing that economic growth underpins our finances," he said.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com