Japanese government bond yields are tumbling again

Photo by Buddhika Weerasinghe/Getty Images

Japanese bond yields are cratering again, reacting to the news that Shinzo Abe’s government is looking to compile a stimulus package of more than 28 trillion yen (around $US265 billion) in attempt to bolster flagging economic growth.

The package, above market expectations of a 20 trillion yen figure, will includes 13 trillion yen in “fiscal measures”.

It is expected that the program will include spending by national and local governments, as well as loan programs.

Reuters notes that the announcement, delivered by Japanese prime minister Shinzo Abe Wednesday afternoon, came earlier than expected and pressures the Bank of Japan to match his big spending plan with additional monetary easing at its closely-watched rate review ending on Friday.

“The amount is so large that the stimulus package is bound to have a big economic impact. It is impossible to spend this much money in one extra budget, so this may take place over the next few years,” Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley, told Reuters.

Despite the expected “big economic impact”, Japanese bond yields tumbled lower immediately following the announcement with the 5-year Japanese government bond (JGB) yield falling to a fresh low of -0.383% in recent trade.

Obviously many traders expect the Bank of Japan will announce additional asset purchases when it announces its July monetary policy decision on Friday this week, especially following the government’s announcement today.

Still, with JGB yields negative out to 20 years, the bond market is hardly enthusiastic about the prospect for a robust and strong economic recovery.

Here’s a daily chart showing Japanese 2 (blue), 5 (red) and 10-year (yellow) JGB yields over the past 12 months.

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