Japan successfully issued 30-year government bonds and the bond market has temporarily gained a respite.

The demand level of the 30-year Japanese government bond auction indicates that policymakers have achieved some success in controlling bond market volatility. The bid-to-cover ratio reached 3.58, the highest level since February, well above 2.92 in June. However, the lowest bid price was lower than expected, indicating that some market participants remain cautious. Yields on Japanese government bonds of various maturities continue to rise, with the 30-year government bond yield rising by 2 basis points to 2.904%, while government bond futures remain in a loss position. Market reaction was relatively subdued, in contrast to the market turbulence caused by the issuance of long-term bonds in Japan in May and the surge in bond yields in the US and UK on Wednesday. Since the Japanese Ministry of Finance announced plans to reduce the issuance volume of long-term bonds, upward pressure on Japanese government bond yields has eased. Martin Whetton, Head of Financial Markets Strategy at The Pacific Bank, commented on the auction results, saying, "Although not outstanding, it's good enough. As the market has received this news quite clearly, it's likely a case of 'buy the rumor, sell the fact.' Looking ahead, with the market gradually adjusting to reduced supply, this situation should be constructive." Japanese government bond yields stabilize after surging In June, the Japanese Ministry of Finance announced plans to reduce the issuance volume of 20-year, 30-year, and 40-year bonds by 3.2 trillion yen (around 22 billion US dollars) from this month to the end of March 2026. Meanwhile, the Bank of Japan announced that it will slow down the pace of reducing bond purchases. The bid-to-cover ratio for the Japanese 30-year government bond auction increased compared to the 12-month average of 3.33. The tail price (the difference between the average price and the lowest accepted price) was 0.31, compared to 0.49 in the previous auction. Earlier this week, demand for 10-year Japanese government bonds was relatively strong, reassuring the market. However, the sharp drop in UK government bonds on Wednesday served as a reminder of market concerns about global fiscal spending. Mark Cranfield, strategist at Bloomberg, said, "Today's solid results for the Japanese 30-year government bond auction, with a significantly higher bid-to-cover ratio of 3.58, despite the lowest actual price being lower than expected. However, the biggest test will come from the secondary market, where a yield of around 2.8% doesn't seem exciting against this year's high of 3.2% for the 30-year bond. In addition, pressure on UK government bonds could disrupt G-10 country bonds later today." Global trends and this month's Japanese election may keep investors cautious about the government's ability to address significant budget deficits. The challenge to limit the rise in 30-year Japanese government bond yields becomes more difficult as large domestic buyers such as life insurance companies no longer purchase bonds of this maturity. Former Defense Minister and policy representative of the Liberal Democratic Party of Japan, Itsunori Onodera, warned last week that Japan's fiscal outlook is facing a "yellow warning." Prime Minister Shizo Abe has made increasing wages and achieving a 1 trillion yen economic goal as his top campaign promises for the upcoming summer Upper House election, which could lead to an increase in fiscal spending.