FX.co ★ Japan 10-Year Yield Near 17-Year High Amid Political Uncertainty

Japan's 10-year government bond yield remained just below 1.7%, staying near the over 17-year high of 1.705% reached on October 8. This stability arises as investors assess new political dynamics and their potential influence on the Bank of Japan's policy trajectory. Komeito, the long-standing coalition partner of the Liberal Democratic Party (LDP), has decided to exit the ruling coalition after LDP's newly elected President, Sanae Takaichi, dismissed Komeito's proposal concerning political donations. This breakup concludes a 26-year partnership and compels the LDP to obtain backing from opposition parties to secure Takaichi's confirmation as prime minister, potentially complicating her plans for an expansionary policy agenda. On the monetary side, investors have increasingly anticipated a potential interest rate hike by the Bank of Japan as early as October 30. This follows a 3.5% depreciation of the yen against the US dollar since Takaichi's election, which could further fuel import-driven inflation. Adding weight to these expectations, recent data revealed wholesale prices increased by 2.7% year-on-year in September, surpassing the forecasted 2.5% growth.