Japan weighs softer bond language to ease yield pressure

Japan’s government is preparing to soften the wording of its economic blueprint after markets took earlier language as a signal of pressure on the Bank of Japan, pushing government bond yields to multi-decade highs. The revised draft would stress that the central bank should conduct appropriate monetary policy to achieve stable inflation, while still keeping a passage that urges the BOJ to align its decisions with the administration’s broader economic agenda.

That balancing act comes as the benchmark 10-year Japanese government bond yield climbed to 2.865%, a 30-year high. Japan’s 30-year bond market has also been under strain, with yields moving toward or near three-decade highs as investors weighed inflation and fiscal risks. A successful 30-year bond auction later helped ease some of the pressure, but it did not erase the market’s sensitivity to signs that politicians want cheaper money for longer.

The timing has made the language shift politically delicate for Prime Minister Sanae Takaichi, whose dovish stance has already drawn scrutiny. The government’s economic blueprint has already been read as more than a routine policy document. An earlier draft in late June called for monetary policy that bolsters private demand, a formulation investors interpreted as favoring lower borrowing costs and a looser stance from the BOJ. The government later moved to adjust the wording after concern that it had gone too far in suggesting direction for the central bank.

The final blueprint is due later in July, after cabinet approval. Political pressure on the central bank to slow rate hikes and the appointment of Ayano Sato to the BOJ board have added to concerns over how far the administration is willing to lean on the BOJ. Katsutoshi Inadome of Sumitomo Mitsui Trust Asset Management said investor distrust over Takaichi’s policy stance and communication with markets runs deep.