Japan’s Government Bonds Face Dual Pressure Amid Political and Trade Uncertainties

Japanese government bonds are bracing for a volatile week as political instability and trade developments converge. Long-term yields hover NEAR record highs following Prime Minister Shigeru Ishiba's coalition losing control of the upper house, emboldening opposition lawmakers advocating for increased borrowing to fund tax cuts.

Short-term yields are also under upward pressure after Japan's trade agreement with the United States cleared the path for potential rate hikes by the Bank of Japan. The yield curve now faces simultaneous pressure from both domestic political uncertainty and global monetary policy shifts.

Prime Minister Ishiba's precarious position adds fuel to the fire. With an emergency parliamentary session looming on Friday, speculation mounts about his political survival. Potential successors like Sanae Takaichi, known for reflationary policies, could further unsettle bond markets if leadership changes occur.