10-year JGB yield will reach 2% next year

The government indicated this week that it will loosen fiscal policy by around 1% of GDP in the upcoming supplementary budget. Coupled with PM Takaichi giving BoJ Governor Ueda a free hand on when to resume the Bank’s tightening cycle, market interest rate expectations edged up. That contributed to the 10-year JGB yield rising to a 17-year high this week, but the larger move at the longer end of the curve suggests that the bond market is baulking at the prospect of additional bond issuance.