Japan’s government plans to cut sales of super-long Japanese government bonds (JGBs) by around 10% for the current fiscal year, aiming to calm investor concerns about market imbalances and rising yields, according to a draft plan seen by Reuters. The rare revision in its Bond issuance program comes after a surge in super-long JGB yields rattled markets in May.
The move reflects Tokyo’s efforts to maintain stability in its massive bond market, particularly after recent weak demand at auctions for long-dated bonds. Yields on 30- and 40-year JGBs hit record highs last month amid a broader global bond sell-off, as investors worried over deteriorating fiscal conditions in major economies.
The revised plan, set to be presented to primary dealers this Friday, will lower overall JGB issuance for the fiscal year ending March 2026 by 500 billion yen ($3.44 billion), reducing the total to 171.8 trillion yen.
According to the draft, the government will cut sales of 20-year JGBs by 900 billion yen to 11.1 trillion yen, 30-year bonds by 900 billion yen to 8.7 trillion yen, and 40-year bonds by 500 billion yen to 2.5 trillion yen. Starting in July, sales of these maturities will decrease by 100 billion yen per auction.
In tandem with the reduction in super-long bonds, Tokyo will boost issuance of shorter-term debt, including two-year bonds and treasury discount bills (T-bills), by 600 billion yen each. This shift will raise two-year bond sales to 2.7 trillion yen from October auctions. The government will also increase offerings of principal-guaranteed JGBs targeted at households by 500 billion yen, aiming to broaden its investor base.
The decision aligns with the Bank of Japan’s (BOJ) cautious stance. Earlier this week, the BOJ announced it would slow the pace of reductions in its bond purchases beginning next fiscal year. The central bank is treading carefully as it looks to unwind elements of its decade-long monetary stimulus without roiling financial markets.
Officials are also considering repurchasing some previously issued super-long bonds with low coupon rates to further improve supply-demand dynamics.
The original bond program had already called for cuts to 30- and 40-year issuance to reflect reduced demand from domestic life insurers, many of whom have met their regulatory requirements for long-dated holdings under new solvency rules. However, renewed global scrutiny of government debt sustainability fueled a broad sell-off of long-dated bonds last month, forcing Japanese policymakers to act sooner than expected.
While the tilt toward short-term issuance may stabilize long-end yields, it introduces new risks, as rolling over shorter-term debt more frequently could leave government finances more exposed to market volatility.
Also Read: Bank of Japan Plans Gradual Bond Purchase Cuts as Inflation Surges and Growth Slows
By adjusting the balance of its bond issuance, Japan hopes to reassure investors and restore confidence in one of the world’s largest and most closely watched government bond markets.
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