Japan Bond Yields Rise as Likely Stimulus Package Sparks Fiscal Concerns

By Ronnie Harui

Japanese government bond yields have hit multi-year highs, driven by fears that the government could unveil a large economic stimulus package will place even more stress on the country's ailing fiscal position.

Prime Minister Sanae Takaichi is expected to finalize a package worth about 17 trillion yen, equivalent to $109 billion, this week, said Carol Kong, a strategist at Commonwealth Bank of Australia in a research note. That would be worth about 2% of the Japanese economy and raises "concerns the stimulus plans will weaken Japan's ability to sustain its already outsized public debt," she said.

Expectations for more stimulus have been growing since Takaichi--a known fiscal expansionist--won the leadership election of Japan's ruling party last month, boosting hopes for more aggressive government spending to support the economy.

The need for this spending was reinforced by data earlier this week which showed the economy in the third quarter contracted for the first time since early 2024.

"Takaichi's bold expansionary fiscal spending plans are likely to swell Japan's debt-to-GDP ratio even higher," said Fawad Razaqzada, an analyst at FOREX.com, in an email.

"Markets now worry that the government is mishandling the economy, demanding higher returns to compensate for what they perceive as rising risk in holding Japanese debt," he added.

The yield on five-year JGBs rose 1 basis point to 1.260% on Wednesday after it earlier touched 1.275%, its highest since July 2008, according to data provider Quick. The 10-year yield added 2 basis points to 1.765% after earlier reaching 1.775%, the highest since June 2008. The 40-year yield climbed 4 basis points to an all-time high of 3.705%.

All this complicates monetary-policy decisions for the Bank of Japan. The central bank has kept interest rates on hold at 0.5% since January due to lingering uncertainties over the impact of U.S. tariffs on the economy, despite concerns that inflation remains above the central bank's 2% target.

However, the prime minister has repeatedly emphasized the importance of close policy coordination between the government and the central bank--remarks some analysts interpret as signaling caution over a near-term rate increase.

"The new government seems to be trying to have it both ways: implementing a massive fiscal stimulus package worth 17 trillion yen while opposing monetary policy normalisation by the Bank of Japan," Razaqzada said.

Write to Ronnie Harui at ronnie.harui@wsj.com

(END) Dow Jones Newswires

November 19, 2025 01:35 ET (06:35 GMT)