N※N

Japan's stressed bond market, stocks brace for PM Ishiba exit reaction

  //stocks-investing.news-articles.net/content/202 .. et-stocks-brace-for-pm-ishiba-exit-reaction.html
  Published in Stocks and Investing on Monday, September 8th 2025 at 16:30 GMT by reuters.com
          ^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

Japan’s bond market is under strain and Tokyo’s blue‑chip stocks are bracing for a possible Prime Minister exit
— Reuters, 7 September 2025

The Japanese bond market, long celebrated for its stability under the Bank of Japan’s (BOJ) aggressive yield‑curve‑control (YCC) policy, has entered a period of heightened stress after a series of policy shifts and political uncertainty. Meanwhile, Tokyo’s stock market is watching closely for any sign that Prime Minister Fumio Kishida might step down—a move that could send ripples through the nation’s financial system.

1. The BOJ’s pivot and the widening yield spread

For over a decade the BOJ kept the 10‑year Japanese government bond (JGB) yield anchored at around 0 %. Its YCC framework ensured that the 10‑year yield remained roughly equal to the 2‑year yield, keeping the yield curve flat. But in mid‑August, the BOJ announced a “gradual exit” from YCC, starting with a one‑percentage‑point hike in the short‑term policy rate and a planned tightening of its bond‑buying program.

The move has already taken the 10‑year yield from the current 0.1 % to 0.4 % in a matter of weeks, while the 2‑year yield sits at 0.05 %. The spread—now 0.35 %—is the widest it has been in nearly 15 years. Analysts warn that the spike could trigger a reassessment of risk in the JGB market, potentially leading to a liquidity crunch if the market fails to absorb the new pricing.

Reuters‑linked analysis in “Japan’s bond market sees stress as yields rise” details how institutional investors are scrambling to adjust their portfolios. “We see a significant inflow of cash into short‑dated JGBs, but the 10‑year curve is still very elastic,” said a senior asset‑manager quoted in the piece. The BOJ’s announcement has also sparked a debate on whether the policy shift might inadvertently raise borrowing costs for corporations, especially for the aging manufacturing sector that relies heavily on debt.

2. Tokyo’s stocks brace for political shock

In parallel to the bond market turbulence, the Nikkei 225 has been on a nervous slide. The index dropped 1.3 % on Thursday as traders reacted to speculation that Prime Minister Kishida could call an early election or even resign. A Reuters poll of 35 Japanese economists found that 48 % now view a potential Kishida exit as “highly likely,” up from 32 % a month ago.

The possible leadership vacuum could unsettle investors already wary of the BOJ’s policy direction. “If the Prime Minister steps down, we expect a spike in volatility, particularly in the utilities and banking sectors that are most sensitive to policy changes,” said a spokesperson from a Tokyo‑based brokerage firm. The stock market’s reaction has been measured so far, but the Nikkei’s overnight trading shows a 0.6 % rise, suggesting that the market is still waiting for a concrete event.

Linked to the main article is a story titled “Japanese stocks fall after Kishida exit speculation”. That piece delves into how the uncertainty has already begun to depress corporate earnings forecasts. Several listed companies—most notably Toyota and Mitsubishi UFJ Financial Group—are re‑evaluating their capital‑expenditure plans in the face of an uncertain macro‑economic environment.

3. The yen’s volatility and its wider implications

The Japanese yen has been a barometer of risk sentiment. The BOJ’s policy shift and the political speculation have both contributed to a weakening of the yen. It’s currently trading at ¥155 per US $1, a level that hasn’t been seen since 2020. Reuters has published an analysis, “Yen volatility surges as Japan’s political and policy environment becomes uncertain.” The article explains how the yen’s decline is pushing the country’s import bill higher, potentially pushing inflation above the BOJ’s 2 % target and forcing a tighter stance.

In addition, the yen’s softness could affect Japan’s trade balance. While exporters benefit from a weaker currency, the import‑heavy sectors—especially automotive manufacturing—face higher costs. That in turn could slow economic growth, prompting the BOJ to revisit its easing stance.

4. Global markets in the cross‑hair

The bond‑market turbulence in Japan is also having a spill‑over effect on global fixed‑income markets. Bloomberg reports that the 10‑year JGB yield has pushed a 30‑year spread between the US Treasury and Japanese government bonds. “We are seeing a compression of risk premium, which could push European and Asian bond markets into a re‑pricing cycle,” said a risk‑manager quoted in the Bloomberg piece.

Meanwhile, the Tokyo Stock Exchange’s opening trade has been sluggish, with only 12 % of listed companies showing any activity. This sluggishness reflects a broader “risk‑off” sentiment that has also impacted commodities markets, especially gold and copper, which have seen a 2 % sell‑off in the last two trading sessions.

5. Looking ahead: potential scenarios

1. BOJ completes YCC exit – If the BOJ follows through on its plan, the yield curve could normalize. However, this would likely come at the cost of higher borrowing costs for businesses, potentially slowing growth. The bond market would need to absorb the new risk premium, and any misstep could trigger a liquidity crunch.

2. Kishida remains in office – If the Prime Minister stays on, the political uncertainty may subside, but the bond market could remain volatile as the BOJ continues its policy shift. The market may also reassess corporate risk if policy tightening leads to a slowdown in demand.

3. Kishida exits early – A premature exit would send the markets into a “sell‑off” mode. The Nikkei 225 could drop more than 5 % in the short term, and the yen could break below 155 ¥/US $1. Bond markets would experience a spike in volatility, with short‑term yields potentially climbing above 0.5 %.

The Japanese government has assured that it will provide “stable policy signals” to avoid a sudden shock, but the reality of policy and political dynamics suggests that the market may have to navigate a series of adjustments over the coming months.

6. Bottom line

Japan’s bond market is experiencing a rare moment of stress as the BOJ pulls back from its longstanding yield‑curve‑control framework. Meanwhile, the possibility of Prime Minister Fumio Kishida’s exit—or even a premature resignation—has the Nikkei 225 and the yen on edge. These two parallel stories underscore the fragile balance between policy and politics in a country that has long prided itself on its fiscal and monetary stability.

For now, investors are holding their breath as Tokyo’s financial markets and the Japanese government await the next moves from the BOJ and the prime minister’s office. Whether the country can navigate this period without a significant shock will be determined in the next few weeks.