FX.co ★ Japan 10Y Yield Approaches 2007 Lows

Japan's 10-year government bond yield has risen to approximately 1.75%, approaching figures not observed since 2007. This shift comes as investors consider the potential implications of substantial fiscal stimulus proposed by Prime Minister Sanae Takaichi. It is anticipated that Takaichi's first stimulus package might approach or exceed 17 trillion yen, surpassing the previous year's package of 13.9 trillion yen, thus heightening concerns over Japan’s already significant public debt. Recent economic data revealed a 1.8% contraction in Japan’s economy for the third quarter, a figure smaller than initially predicted but significant as it marks the first downturn in six quarters. This decline is largely attributed to reduced exports amid US-imposed tariffs, which strengthens projections of increased government expenditure to bolster economic growth. Concurrently, market speculation suggests that the Bank of Japan (BOJ) might refrain from raising interest rates while Takaichi's unexpected spending plans are in progress. Takaichi’s forthcoming discussion with BOJ Governor Kazuo Ueda is under intense scrutiny for insights into the central bank's policy direction and the strategies to be employed in managing fiscal expansion and currency dynamics.