Japanese government bonds are vulnerable to further selling following a historic election defeat for Prime Minister Shigeru Ishiba, although the immediate reaction Tuesday has been damped by a rally in global debt markets.
Benchmark 10-year bonds fell only slightly as trading resumed in Tokyo, pushing yields up by 1.5 basis points. Stocks opened higher on post-election relief, even as their outlook remains at the mercy of tariffs. The yen dipped and faces downside risks in the coming days and weeks from the prospect of more government spending.
While Ishiba hanging on as leader for now provides a measure of continuity for markets, he will also need to find ways to placate opposition lawmakers seeking tax cuts and households wanting relief from inflation. Any concessions to these pressures can be expected to quickly translate into higher bond yields.
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