FX.co ★ Japan 10-Year Yield Falls Amid Fiscal Woes

Japan's 10-year government bond yield declined to approximately 2.05% on the year's final trading day, easing from a near 27-year peak reached recently amidst increasing concerns about the nation's fiscal prospects. The cabinet has approved Prime Minister Sanae Takaichi's unprecedented 122.3 trillion yen budget, aimed at balancing robust fiscal spending with debt management by limiting the issuance of new bonds. This is the first budget presented under the Takaichi administration, and it is scheduled for submission to the Diet in January. Despite efforts to manage debt, Japan's public debt exceeds twice the size of its economy, making it exceptionally sensitive to rising borrowing costs and restricting Takaichi's capacity to implement aggressive stimulus measures. On the monetary front, the Bank of Japan has increased its policy rate to a 30-year high of 0.75%, with speculations that the most likely time for the next rate hike would be at the July policy meeting. However, an earlier adjustment could occur if the yen continues to depreciate.