Japan's ultra-long-term government bonds continued their post-election rally, as Prime Minister Sanae Takaichi's historic election victory alleviated investor concerns over fiscal policy. On Thursday, the yield on Japan's 40-year government bond fell by 10 basis points, while the 30-year bond yield dropped by 9.5 basis points. Following weeks of market volatility driven by worries about fiscal sustainability, yields have now retreated to levels seen in early January—when news of Takaichi's snap election was first reported. The bond market's reaction suggests some investors are betting that Takaichi's win will lead to clearer policies and reduce the risk of worst-case fiscal scenarios. In her first press conference after Sunday's victory, she acknowledged market concerns about her plans to increase defense and strategic industry spending while cutting the food consumption tax over the next two years. "Takaichi did not make a firm commitment to reducing the food consumption tax, giving bond investors strong incentive to rebuild long positions in ultra-long Japanese government bonds, which have historically offered higher yields," said Ryutaro Kimura, Senior Fixed Income Strategist at AXA Investment Managers Ltd. "The downward trend in ultra-long Japanese government bond yields is likely to persist for some time." Although the yen has strengthened against the U.S. dollar for three consecutive days this week, Japan's top currency official, Atsushi Mimura, stated on Thursday that the government remains fully vigilant. This week, Takaichi insisted that the Ministry of Finance would not issue new bonds to cover spending gaps, indicating that the government would review subsidies, special tax measures, and non-tax revenues to identify "sustainable" funding sources. However, investors remain concerned about the potential for another market crash, as the government must still find alternative financing channels if it aims to cut the consumption tax without increasing debt.