Core Viewpoint - Japan's long-term government bonds are facing significant selling pressure, leading to concerns about liquidity and potential market instability as yields rise to historical highs [1][7][10]. Group 1: Bond Yield Trends - As of May 23, 2023, the 30-year Japanese government bond yield decreased by 1.78% to 3.041%, while the 40-year yield fell by 1.70% to 3.522% [1][2]. - The 20-year bond auction on May 20, 2023, was the worst since 2012, with a bid-to-cover ratio dropping to 2.5, significantly lower than the previous month's 2.96 [2][8]. Group 2: Market Dynamics - The Japanese bond market is experiencing a lack of bids, with foreign investors buying while domestic investors, particularly life insurance companies, are selling due to significant unrealized losses [2][9]. - The Bank of Japan (BOJ) is the largest holder of Japanese government bonds, owning approximately 52% of the market, but is planning to reduce its bond purchases, which could exacerbate supply-demand imbalances [8][9]. Group 3: Economic Implications - The BOJ faces a dilemma: raising interest rates could lead to further increases in bond yields and substantial losses for bondholders, while maintaining low rates risks uncontrolled inflation [3][5]. - Japan's high debt-to-GDP ratio, exceeding 250%, raises concerns about fiscal sustainability and the potential for a debt crisis if bond yields continue to rise [13][14]. Group 4: Future Outlook - Upcoming bond auctions in late May and early June will be critical; a weak performance could lead to further increases in long-term bond yields [11]. - Experts suggest that if the BOJ does not intervene, the market may enter a negative feedback loop of selling and rising yields, potentially leading to a liquidity crisis [14][16].

Core Viewpoint - Japan's long-term government bonds are facing significant selling pressure, leading to a liquidity crisis in the bond market, as the Bank of Japan (BOJ) plans to reduce its bond purchases while domestic financial institutions are hesitant to buy due to rising risks and regulatory pressures [1][4][5]. Group 1: Bond Market Dynamics - Japan's 30-year and 40-year government bond yields have reached high levels, with the 30-year yield at 3.047% and the 40-year yield at 3.528% as of May 23 [1]. - The auction for Japan's 20-year bonds on May 20 was the worst since 2012, with a bid-to-cover ratio dropping to 2.5, significantly lower than the previous month's 2.96 [1][3]. - The BOJ currently holds approximately 52% of Japan's long-term government bonds, while other institutions like life insurance companies hold about 13.4% [3]. Group 2: Economic Factors Influencing Bond Sales - Rising inflation and uncertainty surrounding U.S. tariff policies are complicating the BOJ's ability to raise interest rates, leading to a reliance on supplementary policy measures [2][8]. - The depreciation of the dollar and appreciation of the yen have reduced overseas investment returns, further impacting the demand for Japanese bonds [3][4]. Group 3: Future Outlook and Risks - The BOJ plans to gradually reduce its bond purchases, aiming to decrease the quarterly purchase amount by 400 billion yen until it reaches 2.9 trillion yen by the first quarter of 2026 [5]. - Experts warn that if the BOJ does not intervene and bond yields continue to rise, Japan could enter a negative feedback loop of selling and rising rates, leading to a liquidity crisis in the bond market [8][10]. - The high debt-to-GDP ratio in Japan, exceeding 250%, raises concerns about the sustainability of its fiscal policies and the potential for a debt crisis if yields continue to rise [7][8].

Core Viewpoint - The recent surge in long-term Japanese government bond yields reflects structural demand deficiencies in the private sector, with the Bank of Japan (BOJ) currently not viewing the situation as requiring intervention [1][2]. Group 1: Bond Market Dynamics - The yield on Japan's 10-year government bonds reached 1.55%, the highest level since March 28, indicating a significant increase in yields due to deteriorating supply-demand balance [1]. - Analysts from Goldman Sachs attribute the yield spike to changes in demand from life insurance companies and a narrowing duration gap, suggesting that this imbalance is unlikely to resolve in the short term [1][2]. - The BOJ's committee member, Noguchi Akihiro, stated that the recent rise in long-term bond yields may be driven by global yield trends and does not warrant immediate intervention [1][2]. Group 2: Monetary Policy Considerations - The BOJ is currently assessing the impact of each interest rate hike on the economy and is cautious about potential risks before considering the next rate increase [2][3]. - Noguchi indicated that the recent rise in long-term rates is not expected to directly affect the new bond reduction plan to be decided in June, emphasizing the importance of avoiding market disruption [2]. - The focus of the bond reduction plan should be on providing market predictability while maintaining flexibility, allowing the BOJ sufficient time to reduce its balance sheet for market stability [2]. Group 3: Economic Outlook - The economic outlook remains uncertain, and the BOJ should refrain from adjusting interest rates for now, closely monitoring economic developments [3]. - Despite uncertainties surrounding U.S. tariff policies, the market is gradually stabilizing, and the impact on the Japanese economy is still under observation [3]. - The BOJ must act cautiously when considering rate hikes to ensure that core inflation remains stable around its 2% target, supported by sustained wage growth [3].

Core Viewpoint - The surge in Japan's ultra-long government bond yields reflects a structural lack of demand from the private sector [1] Group 1: Yield Surge Reasons - The increase in yields is attributed to structural demand deficiencies in the Japanese private sector [1] - Position adjustments and concerns regarding long-term fiscal policies may also contribute to the rise in yields [1] - Ultra-long bonds are unlikely to stabilize until structural supply and demand improvements occur [1] Group 2: Central Bank Focus - In the absence of sufficient demand from private investors, the Bank of Japan's potential adjustments to quantitative tightening policies and government bond issuance may become a focal point [1]

Core Viewpoint - Japan's 20-year government bond auction has experienced its worst performance since 2012, with a bid-to-cover ratio dropping to 2.5 times, significantly lower than the previous month's 2.96 times [1] Group 1: Auction Performance - The tail difference surged from 0.34 in April to 1.14, marking the highest level since 1987 [1] - The yield on Japan's 20-year bonds rose by approximately 15 basis points, reaching the highest level since 2000 [1] - The yield on 30-year bonds has also climbed to the highest level since their first issuance in 1999 [1] - The yield on 40-year bonds has reached a record high [1] Group 2: Market Reactions - Short-term Japanese bond yields have seen a slight decline amidst the volatility in the bond market [1] - The Bank of Japan faces a dilemma regarding the continuation of its quantitative tightening policy, as further tightening could lead to increased yields and significant paper losses for bondholders [1] - Conversely, abandoning quantitative tightening could risk uncontrolled inflation and a collapse of the yen [1]