Rates Strategy Weekly

Latest edition · August 31, 2026

JGB Strategy | Strategy Weekly

Mizuho assesses that reported FY2027 initial budget requests exceeding JPY130 trillion and JGB issuance around JPY40 trillion are consistent with the Takaichi administration's fiscal stance and pose limited new upside risk to yields. Meanwhile, BOJ Deputy Governor Himino's remarks leave market pricing for a September rate hike near 80%, with Mizuho maintaining core relative value positions including long 20y JGB ASW and a 10s30s OIS steepener.

This weekly report examines Japanese fiscal developments and monetary policy signals. General account budget requests for FY2027 are expected to exceed JPY130 trillion, driven largely by METI, but total issuance is likely to be offset if the government foregoes a large autumn supplementary budget. On monetary policy, Deputy Governor Himino did not explicitly prep markets for a September hike, but elevated FX sensitivity keeps an autumn hike firmly on the table. Mizuho expects the BOJ to hike to 1.25% in September before slowing its pace, viewing market-implied terminal rates of 2.0%+ as overdone. The strategists reiterate existing relative value recommendations: long 20y JGB ASW, receiving forward 20s10s JPY OIS vs paying USD OIS, and a 10s30s OIS steepener.

Key takeaways from the latest edition

• 1.FY2027 initial general account budget requests are expected to exceed JPY130 trillion, but this is consistent with the Takaichi administration's stance and unlikely to be materially more expansionary if an autumn supplementary budget is forgone.
• 2.BOJ Deputy Governor Himino avoided clearly signaling a September rate hike, but the probability of a hike remains elevated around 80% as foreign exchange concerns persist.
• 3.Market pricing of a terminal policy rate of 2% or more is considered excessive; JGB yields are projected to peak in late 2026 and decline in 2027 as US rate cuts resume and Japanese energy inflation subsides.

What this series covers

• (1) News coverage of initial budget for FY2027
• (2) Deputy Governor Himino avoids signaling September rate hike
• DEVELOPMENTS THIS WEEK AND IMPLICATIONS FOR RATES OUTLOOK
• SHORT-TERM OUTLOOK (ONE WEEK – ONE MONTH)
• MEDIUM-TERM OUTLOOK (SEVERAL MONTHS – ONE YEAR)
• Risk scenarios
• (3) Yen rates relative value and investment strategies
• RELATIVE VALUE SCORE TABLES

Edition archive

• JGB Strategy | Strategy Weekly

  August 31, 2026

• JGB Strategy Aug 24

  August 24, 2026

• JGB Strategy

  August 17, 2026

• JGB Strategy aug 10

  August 10, 2026

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  July 13, 2026

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  July 6, 2026