FX.co ★ Japanese Yields Slip on Strong Bond Auctions

On Friday, the yield on Japan's 10-year government bonds decreased slightly to approximately 2.24%. This decline followed strong demand observed at recent auctions of both super long-term and short-term bonds. Such robust interest helped alleviate worries about investor demand for domestic debt, despite the country's worsening fiscal prospects. Notably, the 40-year bond auction on Wednesday recorded its highest demand since March of the previous year, while the 2-year bond auction also experienced demand surpassing its 12-month average. These elevated yields have successfully attracted investors. These recent auctions indicate a stabilization in market sentiment after a significant bond selloff earlier this month, which occurred in response to Prime Minister Sanae Takaichi's proposal to suspend the sales tax on food for two years. Investors remain focused on evaluating the political climate as they anticipate the upcoming snap election for the lower house on February 8. Additionally, minutes from the Bank of Japan's December policy meeting revealed that board members are inclined to continue with interest rate hikes, provided that economic activity and inflation trends align with the bank’s projections.