Japan's Bond and Currency Markets Shaken by Sanae Takaichi's Expansionary Fiscal Policy: 'Honebuto Shock'

The term "Honebuto Shock" is emerging as the "Honebuto" (Basic Policies for Economic and Fiscal Management and Reform), which centers on expansionary fiscal policy under the Sanae Takaichi administration, sends shockwaves through Japan's bond and currency markets.

The yield on the 10-year Japanese government bond, a benchmark for long-term interest rates, rose to 2.830% at one point today (July 6), marking its highest level in approximately 30 years since October 1996.

Bond prices, which move in the opposite direction to yields, plummeted.

The Nikkei reported that the Takaichi administration's move to make active fiscal spending a core part of its Honebuto policy has triggered a sell-off in bonds, driven by concerns over deteriorating fiscal health.

The draft of the Honebuto policy, recently released by the Takaichi cabinet, notably omits any mention of "fiscal consolidation," a principle that had been included in the government's fiscal management guidelines until last year.

The Honebuto policy plans for additional annual fiscal expenditures of 10 trillion yen (approximately 94.5 trillion won) starting from fiscal year 2027, fueling concerns that the Japanese government's fiscal soundness could worsen.

Furthermore, the draft includes a statement that "cooperation with the Bank of Japan for appropriate monetary policy management is crucial," leading some to speculate whether the Bank of Japan's interest rate decisions might be influenced by the government's intentions.

The Nikkei explained that concerns about the central bank being "behind the curve"—failing to keep pace with inflation or the speed of economic overheating and lagging in interest rate hikes—are also contributing to the decline in bond values.

The impact of the Honebuto policy has also reached the foreign exchange market. In the Tokyo currency market this afternoon, the yen-dollar exchange rate rose to the 161.93 yen level per dollar, up 1.15 yen from the closing price at the end of last week.

Analysts suggest that the yen's depreciation is intensifying due to a combination of the Japanese government's expansionary fiscal stance and expectations that the interest rate gap between the U.S., which is expected to raise rates, and Japan will widen further.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.