Japan Economic Notes Weekly Macro and Fixed Income Strategy

The Japanese bond market faces volatility as long-term yields reach 30-year highs due to geopolitical tensions and fiscal policy uncertainties. Despite foreign selling, robust demand from domestic institutional investors remains a key stabilizing force for super-long JGB auctions.

Key Takeaways

• 1.JGB yields have spiked to 30-year highs, driven by Middle East geopolitical tensions, oil price surges, and investor concerns over Japanese fiscal expansion.
• 2.A strong 30-year JGB auction with a 4% coupon suggests robust demand from domestic institutional investors despite fiscal policy uncertainty.
• 3.Foreign investor sentiment toward Japanese bonds has shifted from heavy buying in May to net selling throughout June.

Table of Contents

• Macro Economy: This Week in Review, The Week Ahead
• Next week's indicators
• Fiscal policy update
• Monetary policy
• JGB: This Week in Review, The Week Ahead
• Weekly Wrap-up: Long-term Yields Repeatedly Hit 30-Year Highs
• 30-Year JGB Auction (Jul 7): “4% Coupon” Revives Demand
• Outlook for Next Week (Jul 13-17): 20-Year Auction as Litmus Test for Supply/ Demand Normalization
• 20-Year JGB Auction (Jul 14) Detailed Preview
• Base Scenario and Recommended Strategy
• Other Factors to Watch
• Fund Flows: A Shift in Foreign Demand and Patient Domestic Investors
• Appendix 1

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