BOJ rate-hike path complicated by bond market strains under Takaichi

The Bank of Japan's plan to continue raising interest rates is running into difficulties in the Japanese government bond market, according to analysis of the policy outlook under Prime Minister Sanae Takaichi. The issue is the interaction between the central bank's tightening cycle and the fiscal stance of the new government. Expectations of larger spending and heavier issuance have weighed on longer-dated JGBs, and a disorderly move in yields would complicate the timing and communication of further hikes. The BOJ has been reducing its bond purchases alongside rate increases, leaving the market to absorb more supply and making the balance between policy normalisation and market stability tighter than in previous cycles.