ASIA: Government Bond Issuance Today

ING expects a mostly risk on response from the Takaichi election victory. This reflects the bias around the so-called Takaichi trade to be skewed towards higher local equities, but weaker yen and JGBs.

The bank notes on JGB yields: "JGB yields may exceed the latest high of 2.38% soon (currently at 2.23%) due to spending concerns. However, authorities intend to ensure that no additional bonds will be issued to fund the two-year food consumption tax reductions. If they can show their ability to implement this plan, it may provide some reassurance to the market and limit the pace of rate hikes. Nevertheless, it is our assessment that while this measure may moderate the pace of yield rise, it is unlikely to alter the overall trajectory of rising yields."  

• The 10yr JGB yield tested under 2.20% on Friday before closing at 2.23%, while longer dated yields sit well off recent highs. The 40yr closed Friday at 3.84% after getting to 4.23% in Jan. Focus will also be on the 5yr, which has shown much less tendency to pullback, ending Friday at 1.685%. Increased issuance at this tenor, to fund stimulus, has helped keep yields elevated. Recent highs are just above 1.72%. 

On USD/JPY ING notes: "we anticipate that the USDJPY will approach the 160 level once more, though there will likely be a struggle between the market and the authorities near the 159 mark. However, once the rate differentials begin to narrow, then the USDJPY is expected to change its course to appreciate in the second half of 2026." 

• Our sense is that dips towards 156.50 will be supported, with initial upside focus on a move above 158.00 (currently 157.55/60). Note,157.72 is the 76.4% retracement of the Jan 14 - 27 bear leg, while 159.23 is the Jan 23 high.

On BOJ, ING notes: "Over the coming months, it will be important to monitor economic data and closely follow the BoJ’s communication. Nevertheless, we continue to expect the BoJ to maintain its gradual approach to raising rates and see a 25bp hike in June." 

The USD/JPY range Friday Night was 156.67 - 157.27, Asia is currently trading around 157.60. USD/JPY has opened higher this morning as the LDP wins a supermajority. The price is extending above 157.00 as the market digests the implications of Takaichi’s policy mix as the PM vowed to accelerate talks over a sales tax reduction. This should keep USD/JPY well supported on dips now as the market looks toward the 160.00 area once again. The initial knee-jerk response has been higher but I think this outcome was mostly priced in. On the day, the first support is back towards 156.50 as the market looks to break above 158.00 and regain the momentum to retest the 160.00 area. Expect official Jaw-Boning to increase again should we head back higher.

• MNI BRIEF: JAPAN - Sanae Takaichi’s LDP wins supermajority in Japan election - Financial Times - Prime Minister Sanae Takaichi has won a stunning landslide in Japan’s snap general election, gaining her governing Liberal Democratic Party a supermajority in parliament's lower house.
• Bloomberg - “BOJ Board Member Adds to Signals Pointing to Interest Rate Hikes. “I am convinced that continuing with further policy interest rate hikes will be needed to complete the normalization of monetary policy in Japan,” Kazuyuki Masu said Friday.”
• CFTC Data up to 03/02/2026 shows Asset Managers continued to add back to their reduced JPY longs, +33483(Last +28695). The Leveraged community pared back their large shorts after the BOJ thanks to the response to the “rate check”, –56850(Last -70552).
• Options : Close significant option expiries for NY cut, based on DTCC data: 157.10($823m), 157.50($450mm). Upcoming Close Strikes : 156.50($938m Feb 11), 160.00($1.1b Feb 12) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 112 Points
• Data/Event : Labor Cash Earnings, BoP Current Account Balance, Eco Watchers Survey Current 

Fig 1 : JPY CFTC Data

Source: MNI - Market News/Bloomberg Finance L.P

USD/JPY has opened higher in early Monday dealings, as markets digest the weekend election results, which delivered a decisive victory to PM Takaichi and her LDP party. the pair last tracked near 157.60/65 (just off session highs - 157.76), while we opened near 157.00 (per BBG). We are around 0.25% weaker in yen terms versus end Friday levels. Goldman Sachs notes below that the result is seen as slightly stronger than expected, even though opinion polls before the election pointed firmly in favour of Takaichi. For USD/JPY they note upside focus at 160.00, but are mindful of a pick up in intervention rhetoric or actual intervention.  It sees upside risks to the USD/JPY outlook. 

• Goldman Sachs: "While some initial polls had flagged this possibility, we view this as slightly stronger than expectations. A bigger mandate is likely to fuel concerns about the potential path of spending plans, warranting renewed weakness in JGBs and the Yen, unless the BoJ were to shift towards faster rate hikes. For that reason, we do not see the fiscal implications as fully-priced. We expect implied volatility to pick up again, with USD/JPY moving towards and through 160 as markets digest the full impact of the election results and the mandate for PM Takaichi Sanae. However, the move may be short-lived or even short-circuited if authorities push back through rate checks or actual intervention.
• "As a result, we expect a more muted initial response as markets assess the likelihood of intervention, especially as initial comments from Japanese authorities suggest they will be “communicating” with the market if needed in coming days. We already viewed the risks to our USD/JPY forecasts as skewed to the upside, and we are now placing them under review."

Takaichi via BBG: "On a TV program, Takaichi said that she’d like to proceed on the premise that her ruling Liberal Democratic Party’s election manifesto reference to a suspension of the food sales tax for two years without issuing fresh government bonds had earned public approval." This will be a key focus point in the early part of the Takaichi government. Also via BBG: " A two-year suspension is estimated to cost the government ¥5 trillion ($32 billion) in lost annual tax revenue. ".