Japanese government bond yields are rising further due to concerns about Prime Minister Takaichi’s stimulus measures

Japanese government bonds (JGBs) remained under pressure on Tuesday, with 20-year yields hitting a 26-year high, as concerns mounted over a massive new stimulus. The 20-year Japanese government bond yield rose 7 basis points (bps) to 2.81%, the highest level since July 1999. The 10-year yield rose 2 basis points to 1.750%, a level not seen since June 2008. Interest rates rise when bond prices fall.

Japan’s yield curve steepened sharply as investors priced in a larger-than-expected spending package from Prime Minister Sanae Takaichi, along with further delays in central bank rate hikes.

Takaichi, who has urged the Bank of Japan to work with the government to revive the economy, will hold her first bilateral meeting with BOJ Governor Kazuo Ueda on Tuesday afternoon.

Markets are also wary of an auction of about 800 billion yen ($5.16 billion) of 20-year JGBs on Wednesday.

“The market was optimistic about Takaichi’s spending plans, but it turned out that the size of the economic stimulus package is increasing,” said Naoya Hasegawa, chief bond strategist at Okasan Securities. “It’s bad timing for the 20-year auction,” Hasegawa said. “If demand is weak, yields could rise further.” Japan needs to put together a stimulus package of about 23 trillion yen, Goushi Kataoka, a private sector member of a key government panel, told Reuters on Monday. That would be much larger than the 17 trillion yen package size previously reported by the Nikkei newspaper.

The combination of spending and tax cuts could be financed with 10 trillion yen in new bonds and 13 trillion yen in tax and non-tax revenues, Kataoka said.

The 30-year yield rose 7 basis points to 3.325%, approaching last month’s all-time high of 3.345%.

The two-year yield on Japanese government bonds fell by 0.5 basis points to 0.925%, and the five-year yield rose by 0.5 basis points to 1.260%.

($1 = 155.1700 yen).