Japan signalled heightened market vigilance while playing down recent bond market stress.
Summary:
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Japan monitoring markets closely amid ongoing volatility
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Finance minister says bond market rout has eased
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Details of proposed sales tax cut not yet decided
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Ongoing communication with US Treasury officials
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Authorities stress importance of market dialogue
Japan’s government signalled heightened vigilance over financial market conditions on Friday, as Finance Minister Satsuki Katayama acknowledged recent instability across both global and domestic markets while seeking to reassure investors that stress in the bond market has begun to ease.
Speaking at a press conference, Katayama said authorities are monitoring market developments with a “high sense of urgency,” reflecting ongoing volatility in interest rates, currencies and risk assets. While noting that conditions remain unsettled, she said the sharp sell-off that recently hit the Japanese government bond market appears to have receded, offering some relief after a period of rising yields and thinning liquidity.
Katayama stressed the importance of maintaining close and continuous communication with financial markets, underlining the government’s desire to avoid disorderly moves. Her comments come as Japan navigates a delicate policy environment, with investors increasingly sensitive to fiscal signals, bond supply dynamics and the trajectory of monetary normalisation.
On fiscal policy, the finance minister said details surrounding a proposed sales tax cut have yet to be finalised. The lack of clarity keeps markets alert to the risk of expansionary fiscal measures at a time when public debt levels are already elevated and long-term yields have been testing multi-decade highs. Any move to cut consumption taxes without a clear funding plan could revive concerns around Japan’s fiscal outlook and debt sustainability.
Katayama also confirmed that Japan has been in regular contact with US officials, including ongoing communication with Scott Bessent, highlighting the importance of international coordination amid volatile global markets. The dialogue underscores shared concerns around market stability, capital flows and the spillover effects of policy decisions in major economies.
The comments follow a period of sharp moves in Japanese bonds, with long-dated yields rising rapidly as investors reassessed fiscal risks and the pace of policy normalisation by the Bank of Japan. While recent price action suggests some stabilisation, the broader backdrop remains fragile, particularly as markets weigh the interaction between looser fiscal policy and tighter monetary settings.
Overall, the finance minister’s remarks were aimed at striking a balance between acknowledging ongoing risks and calming market nerves. By emphasising dialogue, monitoring and international coordination, Japanese authorities appear focused on preventing renewed disorder in bonds and spillovers into currency and equity markets, even as policy uncertainty continues to cloud the outlook.
Still ahead:
- BOJ signals readiness for more rate hikes as yen weakness fuels inflation risks
- BoJ preview: Will the central bank intervene in the bond market and sink the yen?
This article was written by Eamonn Sheridan at investinglive.com.