According to strategists at Mizuho Bank, investors are likely to return to the longer-dated Japanese Government Bond (JGB) market following this weekend's snap election, with major asset management firms viewing a 10-year JGB yield of 2.5% as a potential buying trigger point. Jordan Rochester, head of G10 macro strategy at Mizuho Bank in London, stated, "With election uncertainty removed, the super-long-end buyer strike we have seen could end soon." He further added that some of Japan's largest investors are waiting for yields to move slightly higher.

Rochester indicated that during a recent trip to Tokyo, life insurers, asset managers, and banks were nearly unanimous in their view that a rise in the 10-year JGB yield to around 2.5% would present a good buying opportunity. The current yield is hovering near 2.25%. Ahead of Prime Minister Sanae Takaichi's announcement of a snap election, yields on long-term Japanese bonds have risen, with the 10-year JGB yield climbing to 2.38% last month, its highest level since 1999.

If Sanae Takaichi can consolidate her support through the election, it would pave the way for her to increase spending to stimulate the economy. Some domestic Japanese investors, concerned that heightened fiscal worries could push yields higher and troubled by increased market volatility, have been avoiding the long-end of the bond market.

Life insurance companies and pension funds, traditionally the largest buyers of long-term and super-long-term JGBs, have been absent, weakening the demand anchor, although foreign investors have partially filled this gap. Next Thursday will present another test for demand in super-long-term JGBs, as the Japanese government is set to auction approximately 700 billion yen (about $4.5 billion) in 30-year bonds.

In response to declining demand, Japan has been reducing the issuance volume of long-term government bonds. Rochester believes that, given the Bank of Japan's neutral interest rate target range is set around 1% to 2.5%, the 10-year JGB yield has the potential to climb to 3% by year-end. He stated that investor demand for higher term premiums on government bonds, coupled with Japan's economic recovery from decades of deflation, will also push yields higher.