Japan Fixed Income Markets Weekly: Hawkish BoJ, lingering long-end headwinds

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Japan Fixed Income Markets Weekly: Hawkish BoJ, lingering long-end headwinds

J P M O R G A N Global Markets Strategy

31 July 2026

Japan Fixed Income Markets

Weekly

Hawkish BoJ, lingering long-end headwinds

• The BoJ left policy unchanged, but both the Outlook Report and Governor Japan Markets Research

AC Ueda’s press conference adopted a more hawkish tone, emphasizing upside Takafumi Yamawaki

inflation risks and the possibility of a faster pace of tightening. Our economists (81-3) 6736-1748

maintain their October rate-hike forecast, while acknowledging a higher risk takafumi.yamawaki@jpmorgan.com

of a September move if yen weakness reaccelerates. Hiroki Yagi AC

• Separately, GPIF-related speculation triggered short-covering and helped the (81-3)hiroki.yagi@jpmorgan.com6736-6783

10-year sector retrace part of its cheapness. While recent hawkish BoJ JPMorgan Securities Japan Co., Ltd.

communication could provide some flattening pressure on the curve, fiscal

concerns and lingering supply-demand headwinds remain important

considerations. Although insurers increased purchases of super-long JGBs in

June, slowing demand from foreign investors and pension-related rebalancing

flows are unlikely to be fully offset. We therefore maintain our

recommendations of a 5s10s30s JGB body short and a 5s20s JGB steepener,

while staying cautious on positioning.

• While no evidence currently suggests that a revision of GPIF’s asset allocation

is being formally discussed, a higher domestic bond allocation appears

increasingly justifiable given the improvement in JGB returns. However, any

increase in JGB holdings is likely to be gradual, and GPIF-related headlines

will remain a key market focus.

• Discussions surrounding consumption tax cuts remain unresolved, with no