Japan's Prime Minister Faces Challenges as Bond Yields Rise

Japan's Prime Minister Sanae Takaichi should not expect intervention from the Bank of Japan to curb the sharp rise in Japanese government bond yields, according to sources. The intervention is deemed costly and poses significant risks, including the potential for an undesirable depreciation of the yen. Last month, Japanese government bonds experienced a sharp decline, causing turmoil in global bond markets. According to Jin10, Takaichi announced an early election and promised a two-year suspension of the food tax, raising concerns about further expansion of fiscal spending and exacerbating Japan's already substantial debt burden. Despite the market volatility triggering internal warnings at the central bank, three sources familiar with the bank's thinking indicated that the risks of intervening in the bond market currently outweigh the benefits. Insiders revealed that the central bank believes the recent market fluctuations have not yet reached its very high intervention threshold. Sources noted that the Bank of Japan would only step in if speculative trading leads to panic selling or if the market falls into a disorderly state requiring the central bank to act as the last market maker, neither of which is currently occurring.