Foreign investments and robust economy curb rising bond yields in Japan — Reuters

Last weekend’s elections in Japan have raised the likelihood of increased government spending and a wider budget deficit. Still, as Reuters reports, bond yields have so far remained stable, supported by foreign investments and an expanding economy.

According to the news agency, the upper house elections have weakened the ruling coalition and Prime Minister Shigeru Ishiba’s position, just as the deadline for reaching a tariff agreement with the US approaches. Investors are weighing several possible outcomes, from Ishiba continuing to run a minority government to forming a coalition with a small opposition party, or even his potential resignation.

Meanwhile, traders unanimously predict an inevitable easing of Japan’s fiscal policy and a widening budget deficit. Normally, this would trigger a drop in bond prices and a spike in yields, especially given the country’s massive public debt, which exceeds $8 trillion. Yet, yields have held steady. Reuters attributes this stability to a weak yen, persistently low interest rates, Japan’s substantial domestic savings, and the central bank’s policy.