At a critical juncture for the Japanese bond market, the strong performance of the 10-year government bond auction has boosted market sentiment.

The Japanese 10-year government bond auction showed relatively strong performance, boosting market sentiment ahead of the key 30-year government bond auction scheduled later this week. Data shows that the bid-to-cover ratio for this auction was 3.51, higher than the 12-month average of 3.14, reflecting a easing of upward pressure on long-term bond yields due to weakening expectations of a rate hike by the Bank of Japan. Prices of Japanese 10-year government bonds rose after the auction, with the yield at 1.936% as of the release of this report. Since a poorly received 20-year government bond auction at the end of May led to record high yields for super long-term bonds, Japanese government bond auctions have become a focus of market attention. As rising Japanese bond yields affect global bond markets, investors' concerns about expanding government deficits have increased, prompting the Japanese Ministry of Finance to adjust bond issuance plans starting this month. In order to stabilize demand for Japanese government bonds, the Japanese Ministry of Finance announced in June that it would adjust its bond issuance plans. The issuance amount for 10-year government bonds will remain unchanged, while the issuance amounts for 20-year, 30-year, and 40-year government bonds will be reduced starting this month. Additionally, the Bank of Japan announced last month that it will slow down its pace of bond purchases starting next year to ensure market stability. Anmol Agrawal, strategist at Intouch Capital Markets Pte., said, "After entering a new quarter, sentiment in the Japanese government bond market seems positive, especially after the Ministry of Finance and primary dealers decided to reduce the issuance amount of super long-term bonds at the end of last month." He added, "The real test for the market will be the 30-year government bond auction scheduled for this Thursday." The 10-year government bond serves as a benchmark for long-term interest rates in Japan, playing a critical role in influencing mortgage rates and corporate borrowing costs. Miki Den, senior interest rate strategist at SMBC Nikko Securities, described the bond auction as "very strong." He noted that many investors may believe that the Bank of Japan is unlikely to hike rates until sentiment in the automotive industry has recovered. According to the latest survey, confidence in the automotive industry has dropped significantly, and Japan is seeking a comprehensive trade agreement that includes specific tariffs for this industry (including automakers). Despite this, the yields of 30-year and 40-year Japanese government bonds have not seen a significant drop, indicating that the market remains cautious about super long-term bonds, especially on the eve of the 30-year government bond auction on Thursday. Mark Cranfield, strategist at MLIV, said, "Following the strong performance of the 10-year government bond auction on Tuesday, Japanese government bond futures strengthened, but this positive sentiment may be difficult to sustain due to the release of a strong economic report earlier in the day. These data may provide space for Bank of Japan Governor Haruhiko Kuroda to make hawkish remarks during his speech in Sintra, Portugal. With the upcoming complex 30-year government bond auction, Japanese government bond traders may restrain their optimism."